A director stands in a fiduciary relationship towards the company and shall observe the utmost good faith towards the company in any transaction with it or on its behalf. He/she is therefore expected to devote such time and attention as is necessary for the proper performance of his/her duties as a director. Attendance and effective participation at board meetings are crucial to the performance of a director’s responsibility to the company, the effectiveness of the board and by extension the success of the enterprise.
By the provisions of the Companies and Allied Matters Act, the board is at liberty to determine how often it shall meet. The Act provides that “the directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings as they think fit”. The various codes of corporate governance recommend that the board should meet at least once every quarter in order to effectively monitor and provide oversight on the affairs of the company. The SEC and CBN codes specifically provide that a director is required to have attended at least two-thirds of all board and Committee meetings in order to qualify for re-election.
The NAICOM code for Insurance companies requires directors to attend a minimum of 75 percent of board meetings annually. The board is required to disclose in the corporate governance section of the annual report, details of the total number of board meetings held in the financial year and attendance by each director. The codes emphasise the need for “all directors to be able to allocate sufficient time to the company to discharge their responsibilities effectively.”
The time commitment required is a matter which director need to consider carefully before accepting to serve. This would also often depend on the nature of the company’s business and at what phase it is in its lifecycle or growth stage. A company undergoing restructuring, or in the process of receiving significant investment will certainly require its board of directors to meet a bit more frequently. The director should also consider what other significant commitments he/she has that could impact on effective performance and disclose these commitments to the board in advance and or any changes in this regard subsequent to accepting the appointment.
While it is essential for directors to have an indication of the level of commitment required of them, it is impossible to state with certainty how many man hours would be required of them at the time of taking on such commitments. The level of commitment required of a director would vary from one company to the other but the average time commitment by global standards is that a director should be prepared to spend at least four (4) days every quarter of the financial year on the company’s business after the induction phase.
This includes time required to prepare for and attend scheduled board meetings, Annual board strategy away-day(s), the Annual General Meeting, site visits, committee meetings, meetings with shareholders, training programmes and interview sessions as part of the board evaluation process. There is always a likelihood of additional time commitment in respect of preparation time and ad hoc matters which may arise from time to time, and particularly when the company is undergoing a period of increased activity.
In addition to the time commitment, particularly with respect to preparation for and attendance at board meetings, a director is required to actively participate at such meetings by bringing his/her independent judgment, objectivity as well as expertise and experience to bear on board deliberations. To be able to participate actively, a non-executive director particularly, who is not involved in the day to day running of the company, will need to spend sufficient time studying board papers to have a good understanding of the agenda items, be able to ask the right questions and make informed contributions at board meetings.
To facilitate this, it is imperative that board papers are circulated in good time and in appropriate format. It is good practice to provide executive summaries with respect to lengthy reports and presentations and provide appropriate references and supporting documents. Many boards have gone paperless and directors are able to access board papers via dedicated cloud-based portals.
The chairman of the board has a key role to play in encouraging directors’ participation at board meetings by ensuring that all the directors receive accurate, timely and clear information. A proficient and experienced chairman is able to ensure that board meetings are properly conducted in a cohesive manner, effectively stimulate participation from all directors and keep in check a potentially overbearing director.
The chairman is responsible for ensuring that the board is an effective working group by promoting a culture of openness and debate which encourages directors with dissenting views to air such views.
Whilst the diversity of experience that comes from having directors sitting on other boards is invaluable, concurrent membership of too many boards may impact on the director’s ability to contribute effectively.
A director upon arriving at the conclusion that he/she is no longer able to dedicate sufficient time and attention to the affairs of the company or unable for some other reason to discharge his/her responsibilities effectively – perhaps owing to a conflict of interest situation – should resign from the board. Sadly, this is not always the case. Directors tend to stay on even when it is clear that they are no longer able to add value in terms of time commitment to the growth and development of the companies on whose boards they serve.
Being a director is often regarded as prestigious and another laurel, such that individuals hold several directorships concurrently. Directors are encouraged to take this path of honour, and where they do not, the board chair should engage such a director and advise him/her to resign from the board, particularly when it is clear that such a director is no longer able to commit time, expertise or experience to the board and the company.
BISI ADEYEMI
Bisi Adeyemi is the managing director, DCSL Corporate Services Limited. DCSL provides governance advisory, corporate restructuring & board evaluation, board & senior management training, retreats & strategy sessions, executive talent recruitment, HR outsourcing, company secretarial services
