Then there is a related role of "the status-provider". In the past it was sometimes the case that eminent public figures were invited to join boards, because of their public distinction rather than any specific contribution that they could make to board deliberations. Today business acumen, professionalism and the ability to contribute directly to board affairs are usually expected. But cases can still arise where the bringing of reputation, status, even credibility to a board is important. If the company has been through financial difficulties and needs to rebuild confidence with the financial markets, or has had problems with products or services in the market place and needs to rebuild customer confidence, such an appointment can be valuable.
C. The Conformance Roles
The above six roles are oriented towards improving the performance of the company through better strategic thinking and policy making. The following six roles are more to do with ensuring that the company conforms to policies, procedures and plans determined by the board.
Judging, questioning and supervising executive management
We have seen that a potential problem of a board dominated by executive directors is the danger of being both responsible for monitoring and overseeing their own performance – the challenge of "marking their own examination papers". A vital contribution from many independent non-executive directors is the ability to see board issues from various perspectives, in short to play the role of "the judge". The provision of an objective assessment of a situation and a clear evaluation of alternatives can be most valuable. An independent assessment of top management performance can overcome the tunnel vision sometimes found in those closely involved with the situation, or the myopia brought on by being significantly affected by the outcome.
"The catalyst" is a director who is able to question the board's assumptions, causing change without necessarily changing himself. He points out that what might appear to be an incontrovertible truth to some board members is, in fact, rooted in various beliefs that others may have about the company, its markets, its competitors and so on. He can remind the board of value judgments being made during a discussion, where inferences are masquerading as facts. Furthermore he can stimulate the board meetings with new, alternative ideas and insights.
The responsibility of the board to monitor and supervise the performance of executive management, providing independent checks and balances, is often rehearsed in commentaries on the role of outside director. In the next chapter we will discuss the use of board committees, made up of independent outside directors, such as the audit and nominating Committees, to provide such monitoring mechanisms. In this way we can identify a further role for a director as "the monitor or supervisor" of executive performance.
Watchdog, confidant and safety-valve roles
The director in a "watchdog role" has cast himself as the protector of the interests of the owners or, more often, specific interest groups. Representative and nominee directors are inevitably in this position, as they look out for the legitimate interests of, for example, minority shareholders, consumers, employees and the like. The duty of every director to be concerned with the interest of the company as a whole (that is of the shareholders as a whole) must not be overlooked, as we saw in the last chapter.
Some directors may find themselves cast in the role of "confidante"-acting as a sounding board for other directors, the chief executive or the chairman. It means a trusted and reliable counsellor in times of uncertainty and stress;
someone to share concerns with about board matters outside the boardroom. In the political process involving the use, and occasionally abuse, of power at the top of organizations, such a person has much to offer.
Finally, there is a legitimate role for a director, acting at times of crisis, to be "the safety-valve" – the person who is able to release the pressure, prevent further damage and save the situation. One example could be when the chief executive has to be replaced. Executive directors may not be able to act: their future boss is being appointed. Another example might occur if the company suddenly had to face an unexpected catastrophe – a tragic incident involving employees or consumers, for example. Here the good counsel of a wise member of the board could save the situation.
D. The Responsibilities of Directors
We turn now to the duties, rights and responsibilities of directors.
The body of company law, in the jurisdiction in which a company operates, determines many of the responsibilities that directors in that state or country face. Further duties may be found in the laws of insolvency, consumer protection, monopoly and merger, employment and so on. For the public company, whose shares are traded in the public arena, securities trading and investor protection legislation and the rules of the relevant stock exchange will also apply.
Obviously it is not appropriate in this text to attempt to survey the scope of such rules and regulations around the world. A number of general points, however, can be made.
Firstly, the extent and detail of company law varies considerably between jurisdictions. Continental European countries, such as Germany and France, and other states whose laws are rooted in Roman law, rather than Anglo-Saxon case law, tend to have more prescriptive rules to constrain and regulate corporate governance. Moreover, within the case-oriented legal structures the extent of company regulation varies considerably. As an indication the basic companies’ ordinance in Hong Kong runs to 3 675 pages, in Singapore to 567 pages and in England to 630!
Secondly, in most countries the tendency in recent years has been to increase the statutory requirements for corporate disclosure and the regulation of corporate affairs. Further, the tendency to resort to civil litigation has been increasing. The threat of court action has become a significant element in the corporate governance process in some countries. This has been particularly the case in the United States, where class actions (that is the ability to join all members of a class, such as shareholders, in a single action) and contingent fees (that is the process of a lawyer offering to take a case on the basis of tees contingent on the success of the case and the size of any damages awarded – a practice, incidentally, that is prohibited in many other countries) have encouraged such litigation. But other countries, such as the United Kingdom, Australia and Canada, have also seen significant increases in actions being brought against companies, their auditors, their boards and individual directors by shareholders and others alleging, Inter alia, negligence and directors' failure to exercise their proper duties of care and trust.
Thirdly, despite the significant differences in the legal position of directors between jurisdictions, there are a few very general points that are broadly applicable to directors everywhere.
E. Responsibilities to the Shareholders
In most cases directors are formally appointed by the shareholder members of the company. As we saw in Chapter 1, ownership is the underlying basis of power to nominate and elect directors, even though in practice nominations for new board members may come from the incumbent board, which might also fill casual vacancies. Nevertheless the shareholders, meeting together in a properly convened meeting, typically hold the confirming power. Exceptions to the general rule of shareholders appointing directors include some state-owned corporations where the government exercises that power under the relevant statute, and where the articles of association of a company provide otherwise.
Consequently, a director's basic responsibility is to the shareholder members. As we will explore subsequently, boards need to provide strategic direction for the business, setting relevant policies, and to supervise the activities of top management. Further, the board is required to be accountable to the members, including the requirement to present regular reports and accounts, duly audited in most cases, in the statutory form. In some jurisdictions these accounts are filed and are available for public inspection.
F. Directors' Obligation to Honesty and