Legally, the directors are the people who control a company. Although in many companies, especially smaller firms, the shareholders and directors will be the same people, the shareholders are always a separate legal entity. Essentially, the shareholders own the company and the directors run it on their behalf and report back to them as required.
Here are the skills required:
Knows when to delegate
Except in the smallest of companies, the directors cannot personally oversee every single aspect of their business area. A finance director responsible for an accounts function of 20 staff cannot observe everything each one of them does. However, directors do retain overall responsibility, and will be held accountable for any failings in their business area.
A good director thus knows when they can delegate tasks, and when their staff have the necessary skills, knowledge, experience and trustworthiness to be allocated these delegated tasks.
This partially addresses the same point as mentioned above. Delegation is much easier when staff are of high quality. In order to achieve this, companies need to ensure that their new recruits have the necessary skills, experience, qualifications and knowledge to perform their roles. The relevant director, and anyone else involved in the recruitment process, needs to have the necessary interviewing skills to probe deeply into the candidate’s background and to know how to identify the best people.
Directors need to appreciate the risks posed by their business model. Companies are exposed to all manner of risks, such as: the risks of an economic downturn, the risks of technological advances, the risks of damage to the company’s reputation, and regulatory risks (both the risks of enforcement action being taken by a regulator and the risks of a change in the regulatory landscape affecting the firm).
Directors need to carry out a comprehensive risk management exercise on a regular basis, assessing all risks to the company that can reasonably be foreseen. They need to consider both how likely each adverse event is to occur, and how severe the impact of the event would be were it to occur. Then they need to think about how they can mitigate and manage each of the risks.
Understands their business sector
All directors need a certain level of understanding of their company and their business sector, including knowledge of the appropriate laws and regulations. It would normally be expected that a finance director would be a qualified accountant, and that a marketing director would have plenty of experience in that area. But remember that there are also non-executive directors – people who are still considered to be controllers of the company but who do not have day-to-day responsibilities. Non-executive directors are usually appointed to provide a vital outside perspective to the people in day-to-day charge, and they cannot do this if they have no knowledge of the company or the business sector.
When questioned by the Treasury Select Committee of the UK Parliament, former non-executive chairman of Co-operative Bank, Paul Flowers, was unable to give an accurate figure for the size of the bank’s balance sheet. His guess of £3 billion differed massively from the true figure of £47 billion!
The best decisions in any walk of life are those that are carefully considered. A board of directors will be required to make collective decisions on a regular basis. When making these decisions, directors should be able to listen to arguments made by others, and should be prepared to make constructive challenges to these arguments. They must also be prepared to argue their own case, to face challenges to their own viewpoints, and to respond effectively to these objections.
But while any business decision should ideally not be made without appropriate consultation, and without considering available evidence, directors need to be able to make decisions and to be confident they are doing the right thing.
Exhibits good business acumen
Businessdictionary.com defines ‘business acumen’ as: ‘Extensive experience in dealing with commercial matters that yield a prompt and appropriate response to issues that typically have a favourable outcome’. The best directors have the skills, knowledge, experience and mental capacity to make decisions as required.
Most directors will not themselves be entrepreneurs; ie they will not be risking their own capital in business ventures. But the best directors will still have an entrepreneurial flair, and will have the visionary skills to know what is a good idea and what is not, and will be genuinely passionate about what their company has to offer.
Sees the wider picture
Directors are in effect representing their staff and their business department at board meetings. But they need to consider the impact of any proposed strategy on the entire company. Doing what is right for the marketing department alone may have adverse effects on other business areas, or on the company as a whole.
All companies need to sell their goods or services to survive. Sales cannot be made without having customers who have been persuaded that buying what the company has to offer is in their interests. Dissatisfied customers are also unlikely to return. Therefore, a company needs to consider how its potential customer base would react to any decision they might make.
Directors are sometimes required to be spokespersons for their companies. They thus need to come across as being fully behind what the company is doing, and need to be prepared to argue their case in the face of any challenges.
Leads by example
Directors should set an example to their staff. If directors are perceived to have a poor work ethic, or to have an unprofessional manner or unprofessional appearance, it is hardly likely that their staff will conduct themselves in an ideal manner either.
Directors should know how to motivate staff and get the best out of them. This may involve performance related pay, but there are many other ways staff can be motivated, such as job enlargement, awards schemes, effective communication and benefit schemes.
Conrad Ford is managing director of Funding Options.