There is a tendency for those appointed to a Board as a Director or Non-Executive Director to see their director position as not only the culmination of their professional careers, but also as a great personal opportunity - to network with senior executives, decision-makers, and influencers; to earn additional money over and above their regular jobs; or to retire while earning an income. These opportunities come about by attending a couple of Board meetings a year, without the day-to-day responsibility of management. While there is an element of truth to this assumption, it misses a critical component of Board directorship - that being a director is not risk-free.
Serving as a Board director is a serious responsibility because in terms of the Companies Act, a Board director can be held personally liable for any loss, damages, or costs sustained by the company as a consequence of:
- any breach by the director of a duty contemplated in the standard of directors’ conduct;
- failure to disclose a personal financial interest in a particular matter; or
- any breach by the director of a provision of the Act or the company’s Memorandum of Incorporation.
Directors and Non-Executive Directors of a company may also be held jointly and severally liable for any loss, damage, or costs sustained by the company because of a breach of the director’s fiduciary duty or the duty to act with care, skill, and diligence. A company may indemnify a director in respect of any liability, except for a liability arising from situations where the director:
- acted in the name of the company, signed anything on behalf of the company, or purported to bind the company or authorise the taking of any action by or on behalf of the company, despite knowing that he/she lacked the authority to do so;
- acquiesced in the carrying out of the company’s business, despite knowing that it was being conducted in a reckless manner; or
- had been a party to an act or omission by the company despite knowing that the intention was calculated to defraud a creditor, employee, or shareholder of the company, or had any other fraudulent purpose.
It’s worth noting that the above doesn’t even consider the challenges presented by shareholder activism, digital security, climate change, Environmental Social and Governance (ESG) compliance, internal company politics and other competing stakeholder demands. Viewed from this perspective, the “low-maintenance, fee-paying, risk-free” Board director position doesn’t seem as appealing.
The bottom line: before making the commitment to become a Board Director or Non-Executive Director, it’s important to first understand the implications of this responsibility and prepare yourself accordingly. Do this by assessing all the risks and weighing up all the responsibilities – and then ask yourself if this outweighs the opportunity.