By ADEYEMI, Bisi
MON, OCTOBER 17 2016-A Director stands in a fiduciary relationship towards the company and shall observe the utmost good faith towards the company in any transaction with it or on its behalf. She is therefore expected to devote such time and attention as is necessary for the proper performance of her duties as a Director. Attendance and effective participation at Board meetings are crucial to the performance of a Director’s responsibility to the company and, to the effectiveness of the Board and by extension the success of the enterprise.
By the provisions of the Companies and Allied Matters Act, the Board is at liberty to determine how often it shall meet. The Act provides that “the Directors may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they think fit”. The various Codes of Corporate Governance recommend that the Board should meet at least once every quarter in order to effectively monitor and provide oversight on the affairs of the company. The SEC and CBN Codes specifically provide that a Director is required to have attended at least two-thirds of all Board and Committee meetings in order to qualify for re-election. The NAICOM Code for Insurance companies expects Directors to attend a minimum of 75% of Board meetings annually. The Board is required to disclose in the Corporate Governance Section of the Annual Report, details of the total number of Board meetings held in the financial year and attendance by each Director. The Codes emphasise the need for “all Directors to be able to allocate sufficient time to the company to discharge their responsibilities effectively”.
The time commitment required is a matter which Directors need to consider carefully before accepting to serve. This would also often depend on the nature of the company’s business and at what phase it is in its lifecycle or growth stage. A company undergoing restructuring, or in the process of receiving significant investment will certainly require its Board of Directors to meet a bit more frequently. The Director should also consider what other significant commitments she has that could impact on effective performance and disclose these commitments to the Board in advance and or any changes in this regard subsequent to accepting the appointment.
While it is essential for directors to have an indication as to the level of commitment required of them, it is impossible to state with certainty how many man hours would be required of them at the time of taking on such commitments. The level of commitment required of a Director would vary from one company to the other but the average time commitment by global standards is that a Director should be prepared to spend at least four(4) days every quarter of the financial year on the company’s business after the induction phase. This includes time required to prepare for and attend scheduled Board meetings, Annual Board strategy away-day(s), the Annual General Meeting, site visits, committee meetings, meetings with shareholders, trainings and sessions as part of the Board evaluation process. There is always a likelihood of additional time commitment in respect of preparation time and ad hoc matters which may arise from time to time, and particularly when the Company is undergoing a period of increased activity.
In addition to the time commitment, particularly with respect to preparation for and attendance at Board meetings, a Director is required to actively participate at such meetings by bringing his independent judgment, objectivity as well as his expertise and experience to bear on Board deliberations. To be able to participate actively, a Non-Executive Director particularly, who is not involved in the day to day running of the company, will need to spend sufficient time studying Board papers to have a good understanding of the agenda items and be able to ask the right questions and make informed contributions at Board meetings. To facilitate this, it is imperative that Board papers are circulated in good time and in appropriate format. It is good practice to provide executive summaries with respect to lengthy reports and presentations and provide appropriate references and supporting documents. Board papers should also be made available electronically to allow for on-the-go access.
The Chairman of the Board has a key role to play in encouraging Directors’ attendance and participation at Board meetings by ensuring that all the Directors receive accurate, timely and clear information. A proficient and experienced Chairman is able to ensure that Board meetings are properly conducted in a cohesive manner, is able to effectively stimulate participation from all Directors and keep in check a potentially dominant Director. The Chairman is responsible for ensuring that the Board is an effective working group by promoting a culture of openness and debate which encourages Directors with dissenting views to air such views.
One question which remains unanswered by the Codes of Corporate Governance is –what is the maximum number of concurrent Directorships an individual can hold without impacting on her ability to effectively discharge her duties as a Director? The exposure draft of the FRCN Code of Corporate Governance provides that concurrent service on too many boards may interfere with an individual’s ability to discharge her responsibilities and recommends that the Board should consider the other directorships held by such a prospective director and determine whether she can contribute effectively to the performance of the Board and the discharge of its responsibilities before recommending such a person for appointment. To achieve this, a prospective director should disclose her memberships of other boards and these should be disclosed against the name of each Director in the annual report of the company, corporate publications and investors’ portal. Serving Directors are also expected to notify the board of prospective appointments on other boards.
The respective Codes also provide that Directors should not be members of boards of companies in the same industry to avoid conflict of interest, breach of confidentiality and diversion of corporate opportunity.
A Director upon arriving at a conclusion that she is no longer able to dedicate sufficient time and attention to the affairs of the company or unable for some other reason to discharge her responsibilities effectively – perhaps owing to a conflict of interest situation – should resign from the Board. Sadly, this is not always the case. Directors tend to stay on even when it is clear that they are no longer able to add value in terms of time commitment to the growth and development of the companies on whose Boards they serve. Being a Director is often regarded as prestigious and another laurel, such that individuals hold several directorships concurrently. Directors are encouraged to take this path of honour, and where they do not, the Board Chair should engage such a Director and advise her to resign from the Board, particularly when it is clear that such a Director is no longer able to commit her time, skill or experience to the Board and the company.
ADEYEMI, Bisi is the Managing Director DCSL Corporate Services Limited. Email:firstname.lastname@example.org|www.dcsl.com.ng