The Corporate Enforcement Authority recently warned of the "considerable risks" of accepting offers to become directors of companies that you know nothing about, describing such a move as "unwise", but "not unlawful".
"Under Irish company law, company directors are conferred with significant legal duties and obligations," the CEA said in an information note published on its website.
Director and co-founder of the Corporate Governance Institute, Anthony Quigley, said the CEA is trying to make sure that boards and directors and companies understand what the requirements are, and the risks associated with being on a board.
Corporate governance has been in the news for all of the wrong reasons in recent times.
The Corporate Governance Institute said this is because boards are more accountable now than they would have been 30 or 40 years ago, and because there is an increased awareness of the need for boards, companies and stakeholders to do the right thing.
What is the role of a non-executive director?
Non-executive directors do not hold any executive or management position in the company. They are chosen because of the experience, skills and specialist knowledge that they can bring to the board.
"You're not an executive, you're not doing day to day work. As a non-executive director, your job is to guide, assist, motivate, mentor perhaps, the CEO and the executive board," Mr Quigley said.
They should be able to constructively challenge management, and offer independent counsel and advice. It is a role that demands a high degree of integrity.
"You definitely have to be a very strong team player because the board is a small group. You have to work with everybody and understand their skills and your skills."
A good non-executive director is like an effective consultant and a critical friend; they are there to constructively challenge poor thinking and ways of doing things.
What qualifications do you need to become a non-executive director?
None.
In Ireland, the UK and the US, you do not have to have an academic qualification to be on a board.
"You can go on a board without any knowledge," Mr Quigley said. "I wouldn't suggest you do that, but you could if somebody asked you to. There are no real hard and fast rules."
While an academic qualification is not necessary, you must have skills that are in demand.
You will also need training in corporate governance because you do not want to enter a boardroom without knowing your duties as a director and how boards work.
The role of a non-executive director carries many legal obligations - known as fiduciary duties. For example, a director who does not challenge ethical breaches could violate the law.
All directors are expected to practise good governance, but independent, non-executive directors are held to a higher standard.
Currently, there is a trend for people with HR, audit, digital transformation, cybersecurity, and ESG skills.
In the tech world, you will find board members with expertise in technology and finance, and as companies grow and expand, they will require different skills, knowledge and expertise.
The boardroom door is opening up for many aspiring non-executive directors who would not have considered themselves before.
Capabilities – such as managing financial and operational resources – remain highly relevant, but the boardroom door is opening to more people, wanting to make the board more diverse and more inclusive.
When boards search for people today, especially new non-executive directors, they take note of capabilities, and place a lot more emphasis on good social skills, such as self-awareness, listening, communication skills, and the capacity to infer what others are thinking and feeling.
With businesses evolving to navigate an increasingly complicated world, boards must carefully consider their composition to ensure they have the right skills and experience.
What does someone need to consider before becoming a non-executive director?
"The first thing they must be sure of is if they have the right mindset and the energy for the role," Mr Quigley said.
Non-executive directors should bring a genuinely independent and external perspective to stimulate board debate and enhance decision-making.
He advises that a non-executive director should undertake specific and relevant training for the role.
There are also risks that come with being a non-executive director, which are largely reputational. Board members must maintain the highest ethical standards, probity and integrity of the company, and if the board does not, it will reflect poorly on each member.
Similarly, Mr Quigley said the company must also understand its own reputation and how it could cause reputational risks for a potential non-executive director who it wants on its board.
There are ten questions future directors should ask themselves before accepting an invitation to join a board:
- What do I have to offer?
- How will I find the right board?
- How much due diligence should I do? It should be rigorous. The Corporate Governance Institute advises talking to experts, and reading the minutes etc.
- Do I have the time? Ask for meeting dates for the next three years. One of the pitfalls is underestimating the time required.
- Can I contribute? Work out where you can deliver unique and differentiated value.
- Should I expect a board induction? The Corporate Governance Institute says you should expect to go through an induction process.
- Will I learn?
- Will it be fun?
What are the benefits of being a non-executive director?
Being an effective non-executive director is a hugely rewarding experience as you get to sit at the top table and advise on the strategic direction of the business.
The pay varies from company to company, but according to a recent survey by the Corporate Governance Institute, the average pay is between €60,000 -100,000 for a role on a corporate board.
The networking and personal development opportunities are also enriching.
"I have been on boards and I am on boards, and it's really rewarding to take what I have learnt and help somebody accelerate their business," Mr Quigley said.
