Company
directors seem to be missing out on self development. Patrick McCurry looks at
the reasons why and the potential remedies
It is a continuing anomaly of working life that most professions, from
accountants and lawyers to bus drivers, need specific training and a
qualification to do their jobs, but that anyone can become a company director
without any training at all.
However, the need is clearly there. A recent survey by leadership
consultancy Skai revealed that neither senior business leaders nor board
members feel that they are adding value to the business. And, frighteningly, 60
per cent of the board members believe that employees don’t think they add value
either.
The good news is that the growing emphasis on corporate governance,
increasing legislation in the workplace and the challenges of a fast-moving
business environment are encouraging more organisations to set up training
programmes for board members.
Nevertheless, change is slow and many directors say they don’t have the time
for training because they’re too busy running their businesses.
That may be true for some, but only because they haven’t properly structured
their organisations so that directors can step back from daily operations. For
others, the likely explanation is that they don’t feel they need development or
they’re scared of it.
"A lot of directors are afraid of training because they don’t want to
be exposed – they think that as directors they should know everything,"
says Brett Williams, who is setting up a subsidiary of the financial services
company Old Mutual.
Williams has been working with Skai Associates to make sure board members
understand their responsibilities to take a strategic view of the whole company
rather than becoming immersed in their departments.
"Too often, directors spend board meetings defending their turf rather
than contributing to the wider strategy," he complains.
In many ways, however, there has never been a better time to promote
director training. The numerous inquiries into corporate governance in the
1990s, following the business scandals such as the Maxwell pension fund, led to
a combined code that includes a requirement on listed companies to implement
director training.
But that code, whose enforcement has moved from the London Stock Exchange to
the Financial Services Authority, is voluntary.
Pressures
Apart from the combined code, there are other pressures on companies to take
training more seriously, notably the increasingly complex employment law in
areas like working time and discrimination.
Last July, the Health and Safety Commission issued new guidance on
directors’ responsibilities and the government is proposing a law on corporate
manslaughter which would mean directors could face life imprisonment if
collective negligence by the board led to a death.
An HSC spokesman says, "Some companies have very good records on the
awareness of directors on health and safety issues, but some are very poor,
which is reflected in the growing cases of courts handing out big fines."
But there seems little prospect of mandatory training or induction for
directors, such as in countries like Singapore, where directors of listed
companies must have undergone some form of training in issues like directors’
responsibilities.
On the other hand, there has been a significant increase in the number of
directors taking courses such as the Institute of Directors’ diploma, and 18
months ago the IoD launched its rigorous chartered director programme, which it
believes is the first of its kind in the world.
According to the IoD, there has been an increase in the number of directors
taking its courses, up from about 3,000 three years ago to 3,500 today. Around
300 take the full company direction diploma, which typically consists of 15
days spread over nine to 15 months.
Complacency
John Weston, head of the IoD’s director development, argues that complacency
among directors that they don’t need training and development is being chipped
away at, although he acknowledges that lack of time is a barrier.
"That’s why we often run courses of a day or half-day because we know
it’s just not possible for many directors to find the time for a residential
programme," he says.
While the UK could be argued to be going too slow on director development,
it is still ahead of many other countries. In the US, for example, director
training is less developed than in the UK, says IoD professional standards
executive Chris Pierce.
Indeed, the IoD has been hired by Japan’s Management Association to deliver
courses there. "Japan has been going through a number of controversial
business failures, as the UK did in the early 1990s, and they’re eager to learn
about corporate governance from us," says Pierce.
Comparisons with the rest of Europe are harder to make, he says, as the
structure of boards there, including the representation of workers on
supervisory boards, is very different to the UK model.
Of course, the training needs of different kinds of directors in the UK may
be different. A board member on a plc is likely to have far more formal
education than a director of a smaller, family-owned company.
Pierce says, "A FTSE director may have an MBA but seek training to
improve his or her influencing skills at board meetings, while a director of a
small company may have entrepreneurial skills but lack wider business
knowledge."
He adds that when many managers are promoted to director, "they think
it just means a better car parking space" and don’t realise the legal and
fiduciary responsibilities they’re taking on.
Liability
Directors face personal liability in areas such as a company trading while
insolvent or for negligence under the Company Directors Disqualification Act,
which can lead to a director being banned from management for 15 years.
"There are hefty penalties for directors found to be negligent, but
some board members aren’t sufficiently aware of this," says Pierce.
According to Kate Lidbetter, director of consultancy Skai Associates, it is
important that training and development of board members is done from a team
approach. "We try to work with boards rather than individual directors, to
get them to agree collectively on what they’re trying to achieve rather than
being sidetracked into firefighting departmental problems all the time,"
she says.
Skai has been facilitating workshops with the board of Old Mutual’s new
subsidiary in which directors are encouraged to look at the company’s vision
and how that can be achieved by taking a step back from their departmental
functions.
Plans for learning
What the Chartered Director Programme contains:
The reputation of many company directors has taken a battering
in recent years, following financial scandals and controversy over "fat
cat" remuneration.
In an attempt to inspire greater public confidence in board
members, the Institute of Directors formally launched a Chartered Director Programme
18 months ago covering business skills such as finance, marketing and strategy
as well as corporate governance.
Directors who want CDir after their names must sign up to the
IoD’s code of professional conduct. As well as requiring directors to serve the
legitimate interests of shareholders, it states they must exercise
responsibility to other stakeholders and avoid anti-competitive practices and
conflicts of interest.
According to the leader of the programme Simon Bull, gaining
the Charter is not just a way of reassuring the public of the probity of
directors but can also bring business benefits.
"There have been a lot of stories of rogue directors
fleecing companies and the Charter qualification can help directors in their
dealings with their investors, lenders and other suppliers of services," Bull
says.
So far, around 100 directors have been awarded or are about to
gain Charter Status and some 600 directors have passed the initial exam.
The training does not end when chartered status is gained as
there is a continuing development programme, for which Chartered Directors must
record their progress.
Have they got what it takes?
A guide to the five key attributes
needed by directors
1 Strategic thinking: Too many
directors get bogged down in their function and can’t see the wood for the
trees when it comes to the company’s objectives
2 Communication: Knowing how to negotiate with and influence
other board members, as well as communicating the company’s vision with staff.
Knowing how to deal with the media and City analysts is also an increasingly
important skill
3 Knowledge of legal responsibilities: Directors face ever
greater responsibilities in areas like employment law and health and safety.
Negligence in these areas can lead to severe penalties for the firm and, in
some cases, for directors personally
4 Understanding other functions: Directors need to know the
basics of all functions, from finance and marketing to HR and sales
5 Leadership: In an increasingly competitive and volatile
economic environment, directors must be able to inspire their staff and win
trust.
