Owners urged to take more seriously company director roles

 

1 August 2014

 

By Kevin O'Connor

 

Owner-operators are being urged to take more seriously their role of company directors.

 

BDO partner and director Judith Stanway has raised concerns about how the conventional role of company directors doesn’t always work well for owner-operators of companies.

 

Conventionally, shareholders own a company, directors direct it, managers manage it and employees do much of the work. But owner-operators often have to wear all four of those hats, as owners, directors, managers and staff – and the work of directing the business is often the responsibility that gets least attention.

 

BDO Rotorua has been running a series of two-hour education sessions for owner-operators of companies to help them understand the responsibilities of being a director. After three education sessions, at $10 per person attending, BDO has raised more than $400 for the Cancer Society.

Those who attended heard BDO partner and director Judith Stanway list five basic rules for directors:

 

  1. Know what’s going on in your company – not just what’s happening day by day but where the business is heading and how it is supposed to get there. This can be a particular issue for spouses of owner-operators, such as the wife of the skipper of the Easy Rider that sank in Foveaux Strait, drowning all aboard. As a director, the skipper’s wife looked after the books but knew nothing of the details of operating the boat. A court found that as a director she should have known, and convicted her of offences related to the sinking.

  2. Record any important decisions, about what you plan to do and why you are doing it. Then, if things go wrong the directors can show they acted in good faith and in the company’s interests, as required by law.

  3. Owner-operator company directors should keep their personal affairs separate from the company business. It’s good business discipline and helps to ensure the company doesn’t fall foul of the Income Tax Act, the Companies Act and other legislation.

  4. Directors need to know what legislation affects their company – ignorance is no excuse in law if something goes wrong.

  5. Directors should actively direct their company, making things happen to achieve plans and goals rather than just coping with events outside their control.

 

A director’s responsibilities are to:

  • Develop strategy – where he or she wants the company to be in, say, five years, and a plan to get there.

  • Determine the culture of the company by his or her actions – how they treat staff, customers, promises, suppliers, etc.

  • Monitor performance and progress.

  • Meet the company’s legal obligations.

 

Discussion late in the session suggested the most common problems that owner-operator directors face are that some don’t work at being directors of their companies, that they don’t monitor financial performance thoroughly enough to ensure they avoid the Companies Act prohibition of reckless trading, and they don’t fully understand wider issues of compliance with the law, leading to trouble when times get hard.

 

The session ended with several tips for the 14 owner-operator directors attending. They should:

  •  Consider having an advisory board or a single person they can discuss matters with.

  • Use their accountant and other professionals to make sure they are on the right track.

  • Consider actually holding regular directors meetings – good discipline even if there is only one director.

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