Directors: Sorting the facts from the fiction

The confidential nature of a boardroom and low visibility of a board on a day-to-day basis means a number of myths have surfaced about a director's role, obligations and responsibilities.

A veteran board member, business adviser and the membership association promoting increased corporate governance dispel these below.

The first was assuming anyone could be a director.

Although this is true, unless you were discharged under the Company's Act, not everyone should be, said PwC private business leader Scott Kerse.

"People take on the role without fully realising what a significant responsibility they are taking on in terms of the Companies Act [1993]."

The second was thinking owners need to constantly update its board and members.

New Zealand Shareholders Association founder Bruce Sheppard said there was a misconception that boards that have been together for too long become "chummy and lazy", and blase about decisions.  

But, he said, this was a personal characteristic rather than a question of time and process, and therefore not applicable to every board.

Institute of Directors chief executive William Whittaker said many still accumed it was an  "old boys club".

Although this used to be the case, boardrooms were now embracing more diversity.

He said: "Diversity of thought is multi-faceted and encompasses gender, ethnicity, age and skills. Boards should be applying this thinking whenever they are contemplating board appointments."

Therefore, those who still considered it an elitist club were out of touch, Whittaker said.

Kerse said many assumed this was a "cushy job" and, according to Whittaker, that directors were paid to attend a few meetings a year and enjoy expensive lunches.

However, Whittaker said this was a significant time commitment, more so for a chair or those in iwi governance. New Zealand directors were also paid less than their international peers.

Whittaker said people should not assume that silent partners' had little (or no) liability

"Even if they have no idea what's going on, never attend board meetings and haven't read a company document in their lives, they are just as liable as their fully active counterparts," he said.

Sheppard said many owners mistakenly believed they could could get cheap or free advice by including their accountant or lawyer on their board.

"They think they're getting another worker...But it's not a service substitution."

He said directors dealt with high-level strategic issues; reviewed asset allocations and expenses. They do not "get their hands dirty" with operational issues, such as sacking employees.

Kerse said it was, however, appropriate for owners to include an independent accountant on their board, if they needed someone with commercial and financial experience.

Kerse said another mistake owners ran into was not being clear on what they wanted from their board or assuming they had to have one.

"Don't do it because someone at a party said it was a good idea. Or because your accountant or bank manager said you needed one."

Fairfax Media