Exec&Boards News And Insights

The pros and cons of being a Company Director

almost 2 years ago by David Reynolds

The Pros And Cons Of Being A Company Director

There was a time when having a Company Directorship on your CV was prestigious and an indicator for some that they were successful in the eyes of their peers.

But the 2018 Financial Services Royal Commission into misconduct in the Financial Services, Superannuation and Banking sectors cast Company Directorships into a new light with some questioning whether it is a professional and reputational risk they are still prepared to take.

If you are considering accepting a role as a Company Director it is imperative that you do your due diligence on the company. Afterall, it is your brand you are putting in the hands of another company and Board of Directors.

Do you know the quality, skills and experience of the Chairman and other Directors? What is the track record of the company and its Board? Do their values align with yours? What is the culture of the organisation like?

And there are the questions around your role, potential liability and risks of being a Director? What is the company risk and governance framework like? How healthy are the financials of the organisation? What are the borrowing arrangements and covenants? What is the Board Charter and the formal responsibilities of its Directors?

In the same way you would do your due diligence on a new employer to ascertain whether they are a match with you and you with them, you must be prepared put aside the prestige of the role and look at the stark reality.

Is this a company you want your name associated with into the future? Because as a Director it will be, very better or worse.

Former Chairwoman of the Australian Institute of Company Directors (AICD), Elizabeth Proust, was quoted in The Australian newspaper as saying that the fallout of the Financial Services Royal Commission will be a reluctance by some to serve on company Boards.

"Talented business people will shun serving on listed public company Boards as the risks of being a Director will increase sharply following the [Financial Services] Hayne Royal Commission,” she said.

Proust added that the remuneration of full-time Company Directors in financial services institutions paled in comparison to the executives within the organisation and yet the focus on Director’s remuneration and a perception they were overpaid could lead to an imbalance of future Boards.

I agree with Proust when she said demands for Directors to pay for shares with after tax dollars in the company whose Board they served on “could lead to a situation where only wealthy people serve on Boards”.

If a Board of Directors is to best serve its organisation, it must offer a diverse range of opinions from people with broad life and professional experience. What we don’t want is a shrinking pool of people we can afford to be appointed as Directors.

The path to a Directorship can be open if you know where to start and how to push your career in the right direction.

Taking the time to develop professional networks, building knowledge of the industries you want to work with, cultivating your own brand and being an active public speaker and thought leader are all steps towards being offered a Directorship.

If you have weighed up the pros and cons and still want to be a Company Director, I suggest reading my White Paper on Being a Company Director which can be found/requested/ordered here.

By David Reynolds, Senior Partner, Davidson Executive & Boards