Self Defence for NEDs: Minutes As Your Shield
Many aspiring NEDs are wary of the potential liabilities they face as a board member. It’s important to understand the steps you can take to ensure you are protected from censure, penalties and damage to your reputation. Here’s some practical advice on how to avoid a NED pitfall.
In the eyes of the law, there’s no distinction between executive and non-executive directors in the UK unitary board structure. As a NED, you have the same legal duties, responsibilities and potential liabilities as the executives sat round the table with you.
That means a non-exec will be held responsible just the same as any other director if a loss occurs due to breaches by the directors of their assigned duties. In effect, you have the same liabilities as an executive, but none of the power.
In an ideal world, NEDs would have no fear about going about their job. But things do go wrong in businesses, as evidenced by the recent scandals that have hit the financial services sector. Even if this issue was unknown to you and entirely out of your control, you could still face liabilities.
If an investigation comes, you have to be able to illustrate that you took the appropriate steps, as well as every precaution necessary, to exercise care, diligence, and skill concerning the execution of your responsibilities.
When it comes to answering probing questions, you need the board meeting minutes to evidence how decisions were reached. It is essential that your contributions to those meetings are clearly documented in the minutes to prove when you provided an independent voice and constructive challenge. It makes a massive difference to your credibility if you can show you raised any issues on your mind.
This is why it is so important to look carefully at the copies of meetings minutes once they are circulated. You need to be happy they are a comprehensive and truthful description of events. If you feel there are omissions, ask for the relevant detail to be inserted.
Another key thing to bear in mind is the conversations you have outside the board meeting. These could also be crucial evidence of how you undertook your duties thoroughly and professionally. You can request for the details of these conversations to be added to the minutes of the next board meeting, or to be documented officially.
You can of course take your own notes too. But bear in mind, if you leave a board you will still have continuing liability for anything that happened while you were there. However, you will have been required to return all of the notes and documents you previously held. You will no longer have your own records – and you will be relying on the company to provide them if you need them in your defence. For this reason, it is important to know that relevant records and documents have been saved in accordance with correct procedures. One tip is to save double copies securely on their network.
When you’re under pressure, there’s nothing worse than knowing you’re in the right, but you can’t prove it. You have little to fear if you do your job diligently and professionally, providing you make sure the evidence is there.
This is the final in a four-part series sharing the knowledge of experienced non-execs. This blog is based on advice given at our recent Q&A session for aspiring NEDs, hosted by Interim Partners and Wickland Westcott in August 2019. Our thanks to Mark Sismey-Durrant, NED, Cashplus, Bill Gray, NED & Chair of Board Risk Committee, Wesleyan Bank and Graham Wheeler, NED at Credicar for giving their time and the benefit of their expertise.