FTD-Serie: Serie Business English
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Business English: Minefield of a role is well worth the risk
Serving as a company director can be perilous. But for an investor, not taking up such a role is often worseRecently a friend discussed with me a private business he had backed. Things had gone wrong - as they so often do - so my friend had stepped down from the board, perhaps for fear of tarnishing his reputation. The executive directors who remained then proceeded to stitch up a cosy deal with a friendly insolvency practitioner, and buy the business back in a pre-pack administration. My friend was left with nothing. This is what happens if you have ownership without stewardship.
Unfortunately this type of incident is all too common. I can never understand why banks and bondholders provide the vast proportion of the capital, relative to the equity component, for so many highly leveraged companies, yet enjoy no board representation. They have most at risk - but only negative rights, usually exercisable after the event.
Of course lenders demand security, financial information, board minutes, adherence to covenants and so forth. But none of this data provides the same level of insight that attendance at board meetings brings. And if things fall apart, banks only have blunt legal instruments with which to make changes. Whereas directors can influence how a company and its management behave in many subtle but critical ways.
I understand why a credit officer would not want to be a non-executive director of a business to which they have loaned money. They probably lack relevant experience, and would find the task riven with conflicts. If I ran a bank granting big facilities to industrial clients, then I would hire experts to attend board meetings as observers. There is no substitute for having someone in the room.
Yet being a director can be both burdensome and dull. The fiduciary responsibilities are greater than ever - to suppliers, the taxman, employees, customers, shareholders. Meanwhile the administrative load is oppressive.
In the US, almost everyone who acts as a director of a big corporation gets sued sooner or later. Most business founders choose to trade with the benefit of the corporate veil by appointing directors but the price of such a privilege has been rising.
The liabilities for anyone who steps up to the board have steadily accumulated. A company director should understand risks and compliance surrounding everything from filing accounts to disability discrimination, from data protection to bribery, from health and safety to wrongful trading. One almost needs a qualification in corporate law to do the job properly. But are all these obligations necessary or useful?
There might have been a time when being a director was a great status symbol. Now, experienced hands know it is a quagmire of corporate governance and duties - even in smaller businesses. They hesitate before accepting an invitation to serve, knowing that one might face personal bankruptcy or prosecution - even if the acts were not wilful criminality, but just negligence.
Those of a nervous disposition must find the stress unbearable - partly because it is impossible to really know all that goes on inside a large organisation. One can try to build a culture of solid values, set examples, instil a set of ethics - but no system is foolproof.
Of course, directors and officers' liability insurance can offer protection, and expensive defence lawyers usually ensure bosses stay out of jail. It rather undermines one's belief in capitalism that no one has been punished for the colossal losses at RBS, or indeed the catastrophe of Lloyds Ireland (formerly known as Bank of Scotland Ireland). This latter bank has achieved what must be a record: 84 per cent of its GBP17.8bn commercial loan book is impaired. Surely such profligacy must have been something other than just honest mistakes?
I have always taken the view that if I'm willing to buy shares in a company I should be willing to become a director. If the business is an early-stage opportunity it might fail: but that is the very nature of risk capital.
Every venture capitalist has invested in companies that get into trouble - a spotless record means they haven't tried hard enough. Working as a director of an ambitious business is a minefield - and not a role for the faint-hearted.
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The Financial Times, 26.03.2012
© 2012 The Financial Times,
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Börsen- und Finanzmarktdaten:
Bereitstellung der Kurs- und Marktinformationen erfolgt durch die Interactive Data Managed Solutions AG. Es wird keine Haftung für die Richtigkeit der Angaben übernommen!
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