Skip to main content
Become a member
  • Register
  • Login

Register Login

Details

Factsheets

Becoming a director - what does it mean?

19 Feb 2018

The duties and responsibilities of being a Director are onerous and incredibly wide-ranging.

Even if you manage to delegate them, the liabilities still remain with you. However, are you clear about what they are? This checklist will help.


Becoming a director

Whether you become a director by creating a business, or are appointed to the board of an established company, it’s essential to understand the unique responsibility of the director's role. You may be a 'hands on' type – an executive director steering the business, or a non-executive director, more used to supporting, and sometimes challenging, the executive directors.

The following series of briefings explain the process of how board members are selected. Executive directors are fundamentally contracted employees of their company, while non-executive directors are appointed and work under a service agreement.

The following factsheets explain the two paths to the boardroom, what’s expected of a director during their service, and how that service is brought to an end.

The non-executive director role exists to provide companies with access to independent opinions and constructive challenges during decision-making. The non-executive director also takes special care to ensure the company's mission and values are respected and defended. However, all company directors have the same duties, responsibilities and liabilities.

The IoD defines the role of the board of directors as “to ensure the company's prosperity by collectively directing the company's affairs, while meeting the appropriate interests of its shareholders and relevant stakeholders”.

An effective board resolves many apparent contradictions: two examples include exposing the business to risk while remaining prudent, and demonstrating an effective understanding of the business while being sufficiently detached for new thinking.

While the board defines the company vision, mission and values, directors will often serve on sub-committees concerned with particular issues, such as remuneration. The following IoD factsheets explore the purpose of the board and explain some of the key roles:


My job as the independent director was to make sure it was run as a public company. Why? Because the shareholders invested in it, they own it and their opinions should prevail – even if that’s against the individual opinions of the other directors, whether they be the original founders or not. That’s why the independent director has such an important role to play in good governance.” - Gerry Brown, non-executive director and author

Corporate Governance

The Cadbury Report defined corporate governance as “the system by which businesses are directed and controlled”. Therefore, the board is fundamental to the concept and practice of good corporate governance.


Job descriptions

IoD factsheets describe the duties and responsibilities of specific director functions:


Directors' duties under the Companies Act 2006

For the first time, the principal duties owed by directors to their company have been set out in statute, in the new Companies Act 2006. This publication sets out how the requirements of the new Companies Act affect you as a director.

Also, review the IoD factsheet: The duties, responsibilities and liabilities of directors


“Good non-executives are defined by what they achieve, not who they are. They will make an impact based on clear objectives, through the quality of their contributions and in their influence on decisions.” - Sir Andrew Likierman, professor, London Business School


Liquidation for directors

A Guide to liquidation (winding up) for directors (Insolvency Service, 2016): A solvent company may enter liquidation voluntarily, whereas an insolvent company may be the subject of compulsory liquidation (winding up).

This government guide provides detailed information on the grounds and process by which companies may be liquidated. The guide also explains the responsibilities of directors during liquidation.


Disqualification of directors

When a company fails, current and recent directors risk disqualification if a court accepts their conduct contributed to the failure. Directors may also be disqualified if found personally guilty of misconduct. Companies House maintains a register of disqualified directors, which is available to search.


Think about your experience what you can bring to that board, what skills you have, how you will make a difference and how you might help to address the issues that board is facing.” - Paul Munden, IoD’s lead governance tutor


Health and Safety responsibilities

The IoD, in conjunction with the health and safety executive, has produced a comprehensive guide to directors' duties and responsibilities for health and safety. This publication and will enable you to plan, implement, monitor and review health and safety within your organisation.


Further reading

How to become a non-executive director
director.co.uk/how-to-become-a-non-exectuive-director-21044-2/

5 ways to get the most out of a non-executive director
director.co.uk/11759-2-5-ways-to-get-the-most-out-of-a-non-executive-director/

The non-executive director and corporate governance
director.co.uk/9232-non-executive-directors-ned-corporate-governance-business-leadership/

© Institute of Directors. All rights reserved.

Contact us

020 7451 3100

Business information

Enquire online

(Members only)


Opening hours

9am-5pm, Monday-Friday, excluding UK public holidays