How to become a director of a company?
What does a company director do?
Directors are legally responsible for the company’s business and can be held accountable for its actions. They are tasked with promoting the success of the company in the interests of its members (shareholders).
Board members are responsible for making strategic decisions, overseeing smooth business operations and ensuring compliance with statutory requirements.
Being a director is a very different role from other senior positions in the management of a company, bringing unique responsibilities and legal liabilities.
Directors must ensure good corporate governance. They must understand and comply with legal and regulatory requirements, as well as establish and maintain ethical standards through transparency and accountability throughout the organisation. A key role of board members is to build trust with employees, stakeholders and safeguard the organisation’s reputation.
How to become a director of a company?
In today’s fast-paced business landscape, the role of a UK company director has become increasingly complex and competitive. Managerial experience and leadership skills are essential prerequisites for driving business success, along with competence in respect of strategic decision-making, governance and industry knowledge.
So how do you go about becoming a director of a company? Although there are very few legal prerequisites to becoming a director, there are number of things that you can do to kick-start your board-level career.
- Formal qualification – Most company directors have an undergraduate degree but in a particularly competitive market sector, you may choose to continue your education to a postgraduate level. Internships or apprenticeships can also provide invaluable work experience and some university courses offer an elective work experience module.
- Professional qualification – Membership of a professional membership organisation and completing professional training programmes (such as the IoD’s Chartered Director Programme) will help to advance your board-level career and demonstrate a commitment to it.
- Experience – Acquiring a diverse range of business experiences will help you prepare for senior positions and develop your professional network.
- Mentoring – Whatever your experience, a mentor or a coach can provide valuable insights and guidance to help you develop professionally and achieve your professional goals. They can make introductions to influential industry figures, teach you strategies for overcoming obstacles and offer constructive feedback to motivate you.
- Build relationships with business peers and investors to develop trust and learn more about the sector.
- Continuous professional development – By continuously developing their competencies, directors can effectively keep on top of industry trends, lead their organisation, make informed decisions, adapt to change and create value for stakeholders.
- Pursue corporate governance opportunities – A Non-Executive Director (NED) role offers insights, skills and credibility to become a more effective director, while your expertise benefits an organisation by providing a balance of skills. A NED does not work directly for the organisation but has the same legal duties as executive directors. They operate as an independent voice, providing strategic advice to the board and often have an area of specific expertise. Non-executive appointments can also support boardroom diversity among under-represented groups.
What skills are needed to become a company director?
Excelling in a diverse set of core competencies is essential for directors to navigate the complexities of the business landscape and drive business success.
The role of the director is multifaceted and wide-ranging. Directors must have an informed overview of a company’s activities and corporate governance, including an understanding of its exposure to risk and strategic direction. As the consequences of a failure of governance can be far-reaching, there are clear expectations about the competence, ethics and behaviours of directors.
The IoD’s Director Competency Framework offers a comprehensive overview of the prerequisites required to become a successful business director.
The three dimensions are knowledge, skills and mindset.
- Corporate governance – The rules, practices and processes that ensure that businesses have appropriate decision-making and accountability processes in place in the interests of all stakeholders.
- Leadership and stakeholder relations – Being a company director means dealing with many business stakeholders (from employees to investors) to maintain their engagement with the company. As part of the senior leadership team, directors lead by example and use interpersonal skills to guide and empower employees to achieve their full potential.
- Strategy – Understanding what makes a company successful, along with a strong strategic vision helps to identify opportunities and formulate decisions and goals aligned with business strategy to drive sustainable growth.
- Finance – To meet organisational objectives, make informed decisions and drive sustainable financial performance, an understanding of finance is a critical competency for directors. Understanding statutory reporting documents ensures effective monitoring of financial health, analysis of investment opportunities and management of risk, optimising resource allocation and enhancing profitability.
- Strategic thinking – Directors use strategic thinking to overcome business obstacles and evaluate the impact of decisions on the organisation’s long-term prospects, generate unique business insights for competitive advantage and achieve goals aligned with business strategy.
- Analysis and use of information – Good directors understand what makes a company successful and analyse market trends to decide how to anticipate and respond to them. They identify opportunities and formulate decisions and goals aligned with business strategy to drive sustainable growth.
- Decision-making – A critical approach to problem-solving enables company directors to reach solutions efficiently and quickly, minimising their impact on the day-to-day management of the company, leading to smoother operations and greater employee satisfaction.
- Communication – A key skill for directors is listening sensitively to the views of others, as well as knowing how to persuade, negotiate and inspire respect, trust and confidence. By nurturing a collaborative and inclusive environment, directors can enhance employee ownership and engagement.
- Leadership – Leadership skills help directors effectively manage diverse teams and tasks so that the organisation achieves its objectives. Such skills are essential in order to execute strategic plans and achieve measurable outcomes. Leadership requires strong communication, emotional intelligence and the ability to make timely, and sometimes unpopular, decisions. Successful directors foster a positive work culture and empower employees to achieve their full potential.
- Influencing – To be effective, company directors need to know how to influence others. Learning how to be adept at negotiating and persuading can help to encourage others to support your initiatives.
- Ethical – Business ethics are a set of value principles which guide business behaviour. Ethics goes beyond the legal requirements of the company and is about discretionary decisions and behaviour guided by values. Directors must lead by example, upholding the highest standards of integrity at all times.
- Professional – The IoD’s Chartered Director Code of Professional Conduct helps directors to simultaneously meet high standards of professionalism and ethics. The code lays down the professional standards expected of chartered directors and demonstrates their commitment to professionalism and probity.
- Performance-oriented – Good directors don’t just focus on achieving specific measurable outcomes or goals, but on the process of achieving them, with an emphasis on excellence, continuous improvement, flexibility and striving for outcomes that align with the organisation’s values.
- Independent – Non-Executive Directors play an important role in corporate governance. They provide independent oversight, unbiased advice, perspective and judgment. The appointment of independent directors demonstrates an organisation’s commitment to providing proper oversight and governance, helping ensure its success.
- Awareness of self and others – The most effective leaders demonstrate a high level of emotional intelligence – awareness of self and of others. Self-awareness enables leaders to cultivate an inclusive environment and directly impacts profitability. Employees with high emotional intelligence are more likely to remain calm under pressure, resolve conflict effectively and treat co-workers with empathy.
Who can be a director?
Most people can hold a director position, but exceptions include anyone disqualified by the company’s own Articles of Association, undischarged bankrupts, anyone disqualified by a court order and the company’s auditor. Directors must be at least 16 years of age.
Directors are bound by strict regulation and legislation, backed by severe penalties for the most serious transgressions. The Companies Act 2006 sets out the requirements for directors to act in a way that they believe, in good faith, is most likely to promote the company’s success.
Boards need to constantly challenge themselves to keep pace with the changing dynamics they face. One of the key purposes of a board of directors is to introduce a range of informed perspectives into decision making and the emphasis on boardroom diversity has grown steadily over the past two decades.
Studies show that greater diversity in the boardroom brings many benefits, from greater corporate effectiveness to wider social legitimacy. A study by McKinsey & Company showed that ‘companies with diverse boardrooms are out-pacing more homogenous organisations in profit growth’. A robust and comprehensive dialogue from different experiences and viewpoints results in more ownership of the decision-making process.
While there are undoubted benefits of being a director including being able to shape a company’s future, if you fail to meet your legal requirements and responsibilities, there are legal consequences – fines and, in the most severe cases, prison sentences. Under UK company law, a director can be held personally liable for the company’s debts if they have acted inappropriately.
Directors must consider the consequences of all of their decisions and their impact on the company’s stakeholders, as well as maintenance of the highest standards. A director should avoid conflicts of interest such as holding directorships with competitors or profiting from inside knowledge.
If your company finds itself in financial difficulties and you want to resign your position as director, this will not always free you from your obligations and liabilities. Directors must have made sure that all appropriate steps were taken to address financial issues, including seeking professional guidance.
Related resources and courses
The IoD’s professional development courses and qualifications are the gold standard for board-level competency. Designed by directors for directors, they will equip you with the practical know-how you need to succeed.