Non executive directors liability issues

At our recent “Chatham House” meeting (graduates of the AICD course in Perth) we discussed the issues of:
1. Some of the great practical advice that graduates of the AICD Company Directors course had been able to apply; and
2. The legal issues and risks of being a director, particularly non-executive

The course is very good at outlining responsibilities and legal issues for directors – highly recommended if you are considering or are a director. Interesting, a number of participants indicated it is significant enough for them to never consider being a director. I have asked many people including various directors as well as Professor Bob Garrett who wrote The Fish Rots from the Head, amongst other books (signed copies proudly on my bookshelf) whether they shared the view that the legal position against directors is too onerous. No one seems to share the view.

In some respects, the purpose of a limited liability company is to encourage considered risk taking. However in recent times a great deal of that risk has been transferred to the board.

I was very pleased to see a great article by John M Green in this month’s Company Director magazine that succinctly gets to the heart of the issue. He also proposes a better way.

As John describes it, the key issue is that non-exec directors fees may be (depending upon the size of the company) from $30k to $200k per year. If the company faces a significant claim, directors can face unlimited liability, a weak business judgement rule and a newly burgeoning litigation industry? So, small amount of fees against potentially catastrophic risk. He makes a very good point.

Non executive directors are always going to be disadvantaged in business knowledge as compared to company management. Those people who have the talent to be non-executives also potentially can add value to companies by consulting – without the legal liability, and with the ability to involve their own consulting firm to deliver on other projects to the company without conflict of interest becoming an issue.

Non execs play an important role however in the governance of companies – and the role is required as more companies take the path of listing to expand their capital base.

John M Green’s suggestions (to apply only if fraud hasn’t occured):
1. Cap NED’s liability in proportion to their fees
2. Consider Charity NED’s and cap a fixed flat amount
3. Consider NED’s shares as part of settlement.

In summary, the reason why many people I have asked indicate that nothing is wrong with the current system is that the penalties are necessary to have big deterrents to avoid situations like HIH. I agree wholeheartedly. The area of reasonable concern is where directors act in good faith, being diligent and genuinely acting in the company’s best interests. Potential consequences are catastrophic but the rate of prosecution is low. John’s suggestions leave the big stick against fraud, but provide a more sensible position for NEDs. I look forward to the outcome of the government review in this area.

What do you think? Please leave your comments on your experience and views.

The Plagerisation Generation

“You didn’t make that up. I heard that / saw that / wore that 20 years ago….”

One of the art directors I used to work with when I was in the advertising industry commented on retro styling. His observation was that new designers would explore new and different concepts for a goodly part of their careers and then stretch for something fresh. They would go back to what was current at the start of their careers and put a different shade of polish or spin on it. (Must work, I’ve just bought a retro set of golf shoes….)

But are there any perils to be considered in an age where copying, slightly changing and republishing / repurposing existing content and ideas is the norm? One could argue there are pro’s and con’s – and where does a blatant copy (sampling) end and a subtle copy begin.

And music certainly isn’t the only industry for this to occur within – the parallels for business in terms of revisiting existing concepts certainly hold true. New concepts ebb and flow, but often come back to a simiar essence, painting a different spin on existing approaches. Here is how we create value – fresh buzz words plus 3 interconnecting circles and a graph with Value on it with a diagonal line heading upwards to the right.

Got a view? What do you like / hate about our greater than ever capacity to use other people’s ideas? I would love to get your comments…

Jan’ry Feb’ry…

I once had a meeting with a guy that was supposedly a leader in the whole ebusiness area.

He opened the meeting by saying, “I don’t subscribe to that pay the vendor for work model…”. He didn’t particularly articulate how we should get remunerated for what we were doing, but we held our breath and kept listening assuming it would come.

The meeting got more interesting when we got to the specification of what he wanted.

“We are gonna deliver something… in Jan’ry.” (Bear in mind this was late November and nothing had been started..)
“Yeah, we are gonna deliver somethin.. in Jan’ry, Feb’ry, sometime, and its gonna be gooood….”

Jan’ry Feb’ry became part of the kmp venacular – whenever there was a crap specification – or no specification – or someone that clearly didn’t have a clue. “Jan’ry Feb’ry, it’s gunna be gooooood…” said it all.

The World is a Wanker

I once had an interesting experience in a meeting with Bill and a top tier consulting firm, in a very impressive office. We called in to see a mid-level manager and explained what we were doing in the consulting arena around ebusiness – strategy, web enabled application development, portals – enhancing the online user experience. This guy’s response was, “we don’t need you. We have a partnership with Cisco.”
“What? The people that supply routers and switches?”

Interesting enough our very next meeting was with a Partner of one of their competitors, again a top tier firm. The response was entirely different – he was pragmatic, client centric and with an emphasis on solving problems and really interested in how we could help. He wasn’t interested in pushing his own ego and importance – he just had a job to get done well.

At the end of this second meeting Bill exclaimed, “The world is a wanker! People hide behind egos and the protective veil of large corporations, but put them out into their own business and they wouldn’t last 5 minutes. They are just not that bright, regardless of what they tell you. And the more letters after their name, the less they can do.”

“All you have to do is stay 20 minutes in front of the client. You have to have the courage to have a go, and punch above your weight.”

To test this theory, I tried a presentation to a major IT organisation about our capability. I was reciting a presentation fairly much rote, with almost no understanding of the technical terms I was using – but following instructions of speak confidently, roll your hands, lean forward….

And the response shocked me –

“you guys are way in front of the market, I think you will shake up this town…”.

I nearly died laughing…

Since then of course I made sure I did know what I was talking about….

The Technical Hiring Dilemma
In the UK, the Technical Director was a young super bright guy named Nikk who had more technical and business smarts than many people I’ve met with 10 years more experience. He was the one with the critical pressure to ensure projects were delivered and worked. And he also had to manage the resourcing pains of that as well. His common complaint was, “everyone says they can do it right up until the point they cant do it”.

I experienced this on a project. We had briefed a local WA business partner to undertake what looked relatively simple application development. We noticed that he seemed to be taking an inordinate amount of time to do the work, reassuring us that all was on track and that he 90% there. After two weeks of this, he disappeered, taking the payment for the work done to date BUT without us having any code we could use. Of course, he could do it – right up to the point that he couldn’t do it.