Caroline Biebuyck 2 May 2019 12:07pm

Sense of direction

Revised guidance is aimed at helping company directors keep up with their responsibilities. Caroline Biebuyck reports on the details

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Caption: Illustration By Alice Mollon

How can technical support on a complex topic be made easy-to-read while also giving a good overview? That was the big question ICAEW’s business law team faced when updating the Institute’s guidance on directors’ responsibilities and duties.

The information had last been revised in 2008, but as head of business law Charles Worth says, there was a sense it needed more than a refresh to be relevant and accessible for today’s members. “There are so many responsibilities, so many important areas that company directors need to know about, but drawing attention to individual issues can mean the overall picture is lost,” he says.

“The revised guide aims to set out the facts while reminding readers of where they fit into their general responsibilities so they don’t get lost in the detail.” And while there are plenty of books and online subscriber-based services that detail directors’ roles and duties, nothing quite fitted with ICAEW’s remit.

“We wanted to give members and their clients the essential information across a range of responsibilities with some substance and a range of technical information, and with links for people who want to look into it further,” says Worth.

Early on the team decided to keep the focus on small and medium-sized companies. Partly this was for practical reasons, as material relevant to large listed companies could easily run to hundreds of pages. Larger companies may also have their own resource for directors to draw on.

Easy to navigate

The aim was to create a guide which was easy for readers to access and navigate, and which could be updated relatively quickly for changes in the law. This meant replacing the previous format, a 100-page PDF guide, in favour of an online-only version. A landing page directs readers to nine different sections, each of which links to its own web page.

The guide is designed for two main user groups: ICAEW members who are company directors, finance directors, or work with finance directors; and those in practice who advise businesses. “Members would have covered this material during their training but the online guide is a useful aide memoire,” says Worth. “This is a link that members in practice could pass onto their clients, or members in business could share with their fellow directors, pointing out what they need to know. Providing this information also comes under our public interest remit: the ICAEW website is a natural place for people to look for this information as they know our members are business advisers.”

One notable omission in the revised guide which took up about half of the previous iteration is detailed information on financial and accounting responsibilities. This is now covered elsewhere within ICAEW, Worth explains.

“We felt it wasn’t sensible to try to update that as it would only duplicate material prepared in more detail elsewhere,” he says. Responsibilities for corporate administration, corporate governance and a company’s activities all have their own sections, as do rules on a company’s transactions with shareholders and directors. The first section sets out the seven general legal duties in the Companies Act 2006 that all directors need to follow.

The guide also looks at what happens when things go wrong, with sections on sanctions for a breach of directors’ duties, and the extra duties directors face if the company has financial problems or faces a probe. Readers need to know what their responsibilities are when times get tough, says Worth.

“It’s important that they understand when a company is technically insolvent. If the company faces financial challenges – which many do – they need to know where the dividing line falls between being able to carry on and when they cannot, and what they need to do in the latter situation.” This digital-only presentation fits with ICAEW’s general approach to resources and will enable the guide to be updated more easily and regularly, says Worth.

“Making the whole guide more concise and breaking it up into sections makes it easier for readers to navigate.” This makes the guide easier to update too, and Worth is considering providing practical examples of situations readers might face. “These would be based on actual cases, situations where things went wrong in real life and people ended up before the courts,” he says.

“They might, for instance, be short examples written in the spirit of the guide as it is now, in an easy-to-digest format.” Online polls taken before the new guide was published suggested users were happy with the approach. While the previous guide had a lot of hits but a high bounce rate, Worth says data on current usage is very encouraging. “The general duties are the most viewed but users are visiting all the different sections and spending time on much of the guide,” says Worth.

“A recent poll of users suggests that the vast majority are finding what they are looking for. However we welcome feedback as that will ensure we concentrate on areas where members want more support.”

Information overload

If you feel as if you are drowning in information, then spare a thought for the non-executive directors of financial services companies. The surge in regulation in the past decade has led to an explosion in the volume of information they receive in advance of board meetings.

These board packs can easily extend to 1,000 pages or more, all of which needs to be read, digested and the implications under - stood for the non-executives to be able to do their job properly. One of the main problems, says Zsuzsanna Schiff, auditing and reporting manager in ICAEW’S Financial Services Faculty, is a disconnect between the people who produce the board packs and those who use them.

“Packs are now electronic, which is great, of course. But when the reports were not electronic the preparers would think twice about sending a great pile of papers to everyone. Now the temptation is to include so much detail that it’s hard for the non-executives to see the big picture.”

A new ICAEW report, Information overload: effective boards and commit - tees in financial services, considers the intellectual and practical challenges board members face when confronted by so much information. It looks into what is needed for decision-making to be a team effort and concludes that this relies on a robust support system provided by executive and company secretaries, before suggesting practical recommendations to help streamline the provision of information.

The report sets out three main principles for effective board packs. First, boards should define what their needs are, make sure the people producing the board packs understand these needs, and follow up with consistent feedback on the information they receive. Second, the responsibilities for board packs should be well defined.

And third, non-executives should be vocal about their need for good board papers. Boards should not be victims of information overload, says Schiff. “They should not accept that this expanding and increasingly unmanageable volume of information is a part of life and that as regulation increases things are going to get worse.

They need to take responsibility for this: to make clear what they need and to make sure they get it. “Much of the issue is about ongoing communication between those preparing the board packs and those reading them. If the users aren’t getting what they want, they need to keep this issue as an item on the board’s agenda and keep going back to it until the packs are presented in the way they want.” The report details 10 specific proposals for chairs and non-executives and another 13 for executive and management.

While these proposals are designed to be comprehensive, they can be viewed together or in isolation. Schiff suggests using them as a checklist of proposed actions. “Even achieving five or six will help – each one of the items that can be checked off will make a positive difference,” she says. The Senior Managers & Certification Regime means directors in financial services firms have personal liability for their actions, making it even more crucial that they have the information they need.

However Schiff points out that the recommendations in the report apply equally to all boards in which board members feel they are getting too much information – especially those in other regulated sectors. “They would do well to listen to the financial services experience,” she says.