Responsibilities of Directors

Directors should Act on Signs of Trouble
Some signs that indicate a company may be running into financial difficulty include the following.

  • Suppliers are refusing to extend further credit.
  • Continuing cash flow problems.
  • Low profits being achieved according to periodic financial results.
  • Repayments of loans are not being met on due date.
  • Overdraft is increasing rather than reducing.
  • Threat of legal action from parties to whom funds are owed.

If some of these signs are becoming obvious, then directors need to meet together to work out a plan for resolving the situation and protecting the company. Difficulty arises when directors delay action and try to trade out of the company’s problems. This can damage the company and if they have acted without due care and skill, then they can be held personally liable for losses.

Types of Directors
There are two main types of directors – executive directors and non-executive directors.

  1. Executive Directors
    These directors are generally full time employees of the company and form part of the management team and Board of Directors.

  2. Non Executive Directors
    These directors are not involved full time in the management of the company. They are brought in because of their experience and skills in the areas that the company requires expertise in. These directors are often people with a high public profile and it is their name that gets them onto the board. Their reputation helps to promote the company to shareholders as well as to the public.

    A lot of these people are known as “professional directors” and are well paid for offering their expertise and their reputation. They are brought on to add credibility to the company because of their fame or record of success in business or because of their standing in the corporate world.

Dubious Action by company Directors
Many directors are professional directors who sit on the board of several companies. They are paid fees for their directorship and can earn a considerable amount of money if they sit on the board of half a dozen or so, companies. One of the things that should be looked out for is the practise where directors use their position to provide personal benefit.

Some signs of poor directorship include:

  • Directors who work to downgrade the value of a company so they can buy shares at a lower price. They work hard to bring the company back to its true, profitable position, then sell for a high profit.

  • Directors who grant lucrative management contracts to themselves with the company.

  • Directors who are major shareholders in the company and they primarily are interested in watching over their own personal investments.

  • Directors who are share brokers and use their client base to influence the company’s share price.

  • Directors who award themselves incentives and other allowances on top of their remuneration without any thought to the cost of those incentives to the company.

  • Directors who act in any way to “feather their own nest” and do not have regard for the interest of the shareholders of the company.