Modern directors must continually develop to promote good governance

Gordon Milligan, Chairman, Institute of Directors (IoD) Northern Ireland

By Gordon Milligan, Chairman, Institute of Directors (IoD) Northern Ireland

Issues around the importance of good corporate governance have rarely been as prominent in the headlines as they have been over recent years.

High profile failures such as the collapses of construction giant Carillion and retail behemoth BHS have dominated news bulletins, catching the attention of even the most casual of observers.

The cases served to illustrate the potentially catastrophic effects when corporate governance is not placed at the very heart of business operations.

They are also a reminder that getting it right, even for some of the UK’s best-known firms, is not a simple task and as the role of the modern director becomes an increasingly complex and specialised one, forming a board that possesses the requisite level and breadth of expertise to ensure optimum company oversight, is not a simple task.

We welcomed the publication earlier this year by the Financial Reporting Council of an updated UK Corporate Governance Code, particularly in that it called for increased engagement with a much wider range of stakeholders within the organisations.

Furthermore, it encouraged business behaviour to be geared towards more long-term goals and, greater recognition to be made of the role of boards in overseeing a company’s purpose and culture.

Where it fell short however was in not giving due prominence to the crucial importance of continual professional development in shaping company directors.

We believe this to be key and there is an ongoing need for those on boards to take stock of their competencies and seek improvement where necessary.

It is important because research consistently shows that focusing on the development of directors and improving corporate governance and management practice can have a direct impact on overall productivity.

The IoD Academy, launched earlier this year, is already playing a huge part in this process by providing a range of programmes underpinned by the IoD Director Competency Framework, which identifies the knowledge, skills and mind-set required to be an effective director.

The Carillion and BHS cases illustrated that even the largest companies are not immune to corporate failings but there are particular challenges for smaller firms, the majority of which are structured much less formally.

In Northern Ireland, this tends to mean family or founder-owned firms, which make up the vast majority of companies. With only around 30 per cent of family businesses surviving into the second generation and just 3 per cent of all family firms operating into the fourth generation or beyond, it is clear they face unique challenges.

For such firms, finding the appropriate level of expertise in-house may simply not be feasible, and even with a strong programme of professional development within the company, seeking to appoint non-executive directors from outside the organisation may be necessary.

Operating independently of company management and any other interested parties, non-executives bring a degree of objectivity to board deliberations, providing independent oversight and constructive challenges to the directors and play a valuable role in monitoring executive management.

Valuing professional development and seeking the assistance of non-executives where necessary, will help businesses ensure they continue to operate effectively and make the headlines for all the right reasons.

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