Rick Bond tests your knowledge about boards
An appropriate place to begin, in this new series on governance, is with a test of your knowledge of a director?s responsibilities. And by ?director? I am, of course, referring to trustees and members of boards, as opposed to those members of staff who are remunerated for their services.
Some of the answers may be obvious, but some may come as something of a shock, or challenge your beliefs. Either way, it would benefit both board members and their employees to fully appreciate some of the legal responsibilities of directors ? both individually and collectively ? as these responsibilities create the context within which the directors are required to direct the company?s strategy and comply with legal and fiduciary obligations.
For each of the following questions choose the statements you believe to be true. (In some cases it will be more than one.) Then check your answers with the correct answers below.
1. What is a director?
a) Someone subordinate to the Chair
b) Someone appointed for her/his expertise in a particular area
c) One among equals in a boardroom
d) Someone heading up a functional responsibility, e.g. Treasurer
2. To what extent should a director participate in board matters?
a) Only when asked to do so by the Chair
b) On matters related to his/her areas of expertise
c) Not when it means being critical of the management
d) Being prepared to offer opinions, advice and to ask questions on all agenda items
3. Is a director responsible for board decisions made when he or she is not there?
a) No, not if she/he raises an objection that is minuted
b) Yes, whenever a decision is taken at a properly constituted board meeting
c) No, not if the meeting was called without reasonable notice
d) No, he/she would never be held responsible for decisions made in his/her absence
4. When is a director free of his/her responsibilities to a company?
a) After tendering his/her resignation
b) After the company has gone into liquidation
c) Three years after resigning from the board of a company still trading
d) Never, in respect of decisions made during the period of time she/he served as a director
5. Who is responsible for the final wording of the board minutes?
a) The Chair
b) The board of directors
c) The Company Secretary
d) The company lawyer
6. How much notice does a formal board meeting require?
b) 7 days in writing
c) In an announcement at the previous meeting
d) Reasonable time, given the circumstances
7. Who is responsible for the Chair?s decisions?
a) The Chair
b) The company
c) The board of directors
d) The decision is null and void ? Chairs cannot make decisions
8. How often, legally, must a board meet?
a) Once a year to prepare a directors? report
b) Whenever the Chair deems it necessary
c) Whenever the Chief Executive / senior manager deems it necessary
d) As stated in the Memorandum of Association
9. If, as a director, you are a lone dissenter in a decision, are you still responsible for its implications?
a) Yes, under collective responsibility
b) No, you made your position clear
c) No, this would be unfair and unjustifiable
d) No, if you resigned as a result
10. When has a director the right to have his/her opinion minuted?
a) When the decisions made are likely to have a direct bearing on the success or failure of the company
b) At any time
c) At the discretion of the Chair
d) When allowed by the majority of the board
11. When is a company first deemed to be insolvent
a) When a company?s liabilities exceed its assets
b) When a company?s current liabilities exceed its fixed assets
c) When a company is unable to pay its debts as and when they fall due, even if it is still making a profit
d) When its assets are insufficient to pay its debts and the cost of winding it up
12. In a company limited by guarantee, in which circumstances could a director be held personally liable for the company?s debts?
a) Trading unlawfully
b) Trading in breach of trading practices
c) Trading fraudulently
d) Acting negligently
13. Which of the following could be regarded as directors of your organisation?
a) Shadow director (one whose influence or instructions the board are used to accepting or acting upon, e.g. Chief Executive, Manager, Consultant)
b) Any person in the management team with the word ?director? in their title
c) Alternate directors ? one appointed to stand in for a director, by that director, in their absence
d) De facto ? a person acting as a director but who has not been formally appointed or the process of appointment has not been completed
Rick Bond is Director of The Complete Works (UK) Ltd, a cultural consultancy and training company. t: 01598 710698; e: firstname.lastname@example.org
Answers: 1:c, 2:d, 3:b, 4:d, 5:b, 6:d, 7:a&c, 8:a, 9:a, 10:b, 11:c, 12:All (and ?ignorance? can be included under negligence!), 13:All