What You Need To Know Before Transitioning From Business Owner To Director

What You Need To Know Before Transitioning From Business Owner To Director

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The moment you sign the piece of paper to become a director of a company is the moment when a door suddenly opens to a new world and a plethora of duties and responsibilities. Anyone who has started a company has been through the process.

This quite likely applies to you. Did you understand what signing that document really meant at the time? Do you have a clear comprehension now of what it requires of you?

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Do you know what it means to be a high-performance director? This applies to executive directors and shareholder-managers, as well as non-executive and independent directors.

It is a critical role that we are seldom well-prepared for and one that I am passionate about helping others master.

Why do private companies need boards?

Most business founders and shareholder-managers I have met are quite surprised when I talk about how critical a board is for a private company. ‘Surely that is just for large companies? Why would I need all that hassle if I am the sole or majority shareholder and managing director?’

The challenge is that governance and a board of directors are concepts that are poorly understood, yet they are the very things required to lead any private company from small to large, and from good to great.

What skills should a director have?

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Being a director requires a specific skill set — a way of thinking and focusing on business growth that, unless specifically developed, will drop into management and operational thinking. If you are the executive director, unless you have a board to support you to lift this thinking, you may remain in management mode.

Being a director, and this applies specifically to non-executive directors, demands two primary qualities: The first is ‘commercial acumen’ or an ability to grow great businesses. When we assess directors for our private company client board appointments, this skill set is critical.

The second, and equally important quality, is emotional intelligence. It isn’t about how many degrees you have or how many listed company boards you have sat on.

It’s your ability to know your responsibilities, engage fellow directors as a team and deliver sustainable and ethical business growth for the company you serve.

What are a director’s duties?

The new Companies Act brought with it fundamental changes in how we think about directors’ responsibilities. Signing that piece of paper immediately bestows upon us fiduciary duties of care, skill and diligence.

Even if we are not formally a director, if our role has significant enough decision-making powers in the company, we may be deemed to be a director, known as a ‘prescribed officer’.

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Directors can now no longer hide behind the ‘I did not know about it’ excuse when decisions or business outcomes go awry.

As a director, you have a set of responsibilities that you should know or have gone to reasonable lengths to know. When you make decisions within the company, there are specific processes you are expected to follow to ensure that good decisions are made, solvency is maintained and stakeholder interests are cared for.

Conflicts of interest must be declared and you must be beyond reproach in putting the business first before all other interests, every time.

Yet how many directors have invested in the study and application required to fulfil these responsibilities? Signing that piece of paper is easy. What happens next is another story.

You may be a highly successful founding shareholder-manager or executive director with an outstanding track record of growing ‘your’ company. Yet it might not be enough. When we look through the lens of directors’ duties, will we see fiduciary compliance, stakeholder inclusion and legal principles in play?

Carl Bates
Carl Bates is a global entrepreneur, speaker, author, mentor and director. Currently based in South Africa, he is a dynamic entrepreneur from New Zealand who guides small to medium businesses to achieve Extreme Business Success.