A Handbook for New Company Directors
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About this ebook
Want to find out exactly what company directors do?
This is a handbook for new board directors. It gives a thorough grounding in what a new board director (private, government and not-for-profit) needs to know to become and operate as a functioning, professional company board director.
It is also a useful handbook and instruction manual for the experienced director to refer to for those complex and difficult decisions.
Michael Moore
Michael Moore was born in Flint, Michigan, and attended Catholic schools, including a year in the seminary, which he says accounts for his healthy respect for the fires of hell which seem to be located somewhere just outside Crawford, Texas. He was an Eagle Scout, Newspaper Boy of the Week, and the youngest person ever elected to public office in the state of Michigan when he was 18-years old. Michael Moore is now the Oscar and Emmy-winning director of the groundbreaking and record-setting films Roger & Me, Bowling for Columbine, and Fahrenheit 9/11 (which also won the top prize at this year's Cannes Film Festival and has gone on to become the highest grossing documentary of all time.) No Disney film this year has made as much at the box office as Fahrenheit 9/11. It became the first documentary ever to premier at number one in the box-office in its opening weekend. Film Comment has called it "The Film of the Year." Michael Moore is also America's #1 selling nonfiction author with such books as Stupid White Men and Other Sorry Excuses for the State of the Nation, and Dude, Where's My Country. No other author has spent more weeks on the New York Times hardcover non-fiction list in the past two years than Michael Moore. Stupid White Men was also awarded Britain's top book honor, "British Book of the Year," the first time the award has been bestowed on an American author. Michael now has two new books being published by Simon & Schuster: Will They Ever Trust Us Again -- Letters from the War Zone, which is a compilation of letters he has received from soldiers in Iraq and from their families back home; and The Official Fahrenheit 9/11 Reader, which contains loads of backup materials for the film, plus essays, and the film's screenplay. In addition to winning the Academy Award for Bowling for Columbine, Michael Moore won the Emmy Award for his NBC and Fox series, TV Nation and was also nominated for his other series, The Awful Truth (which the L.A. Times called "the smartest and funniest show on TV.") Michael Moore also wrote and directed the comedy feature Canadian Bacon starring the late John Candy, and the BBC documentary, The Big One. He has directed music videos for R.E.M., Rage Against the Machine, Neil Young, and System of a Down. His other best-selling books include Downsize This! Random Threats from an Unarmed American, and Adventures in a TV Nation, which he co-wrote with his wife Kathleen Glynn. His books have been translated in over 30 languages, and have gone to #1 in Italy, Germany, France, Japan, Great Britain, Australia, Ireland, and New Zealand. Michael currently spends his time reading, gardening, and removing George W. Bush from the White House.
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A Handbook for New Company Directors - Michael Moore
References
About the Author
Michael is an experienced company director and author for over 30 years. He has written several books and thousands of articles on gold, diamonds, bitcoin and blockchain, stem cell therapy and a plethora of other subjects.
Michael is the managing director of Technical Author Services Pvt Ltd.
Copyright Information ©
Michael Moore (2020)
The right of Michael Moore to be identified as author of this work has been asserted by him in accordance with section 77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the publishers.
Any person who commits any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages.
Austin Macauley is committed to publishing works of quality and integrity. In that spirit, we are proud to offer this book to our readers; however, the story, the experiences, and the words are the author’s alone.
A CIP catalogue record for this title is available from the British Library.
ISBN 9781528992909 (Paperback)
ISBN 9781528992916 (ePub e-book)
www.austinmacauley.com
First Published (2020)
Austin Macauley Publishers Ltd
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Introduction
This booklet is designed for the new director. It gives a basic outline of the duties and responsibilities of a board director and includes some extra information to help the new director to find their way in a board and settle in it comfortably.
The board of director’s function is primarily that of corporate governance. Corporate Governance is the method by which a corporation or organisation is governed or controlled. How it is run and administered and what policies and guidelines it operates from.
The type of governance a corporation has will depend on a number of factors. Size is one, both of the board and of the company. Ownership structure, even the power structure; who controls what. Also, the type of industry and community framework will have a bearing on the corporate structure and governance used by a company.
It is recommended that you study this book thoroughly and make it absolutely certain that you never go past a word, which you do not fully understand. The only reason a person gives up a study or becomes confused or is unable to learn is because he or she has gone past a word or phrase that was not understood. An attempt to read past a misunderstood word results in mental ‘fogginess’ and difficulty in comprehending the passages, which follows. If you find yourself experiencing this, return to the last portion you understood easily, locate the misunderstood word and get it defined correctly and then continue with the rest.
Intro to Corporate Governance
Corporate governance has been defined by the ASX Corporate Governance council as:
The framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations.
It also includes those methods by which companies and those directing and controlling the company, are held responsible for the company and can be therefore held accountable.
Companies come in all shapes, sizes and structures. The governance that applies will vary according to the type of company it is. A small two-director company with less than 10 employees and under one million dollars turn over will operate very differently to that of a large corporation of thousands of employees, a full board of 7 or ten directors with various committees and subcommittee and a turnover of billions of dollars.
In addition, public companies, unlike private, needed to conform to the Listed Rules for the Exchange, for ASX listed companies.
But the basics of corporate governance remain regardless of the size and type of company.
The directors must carry out, or ensure that the legal requirements of corporation are carried out and ensure that the corporation or company complies with statutory and common law, as applied to businesses.
A New Director
A new director needs to become fully familiar with the fundamentals of the business and operations of the company. This includes making sure that one is fully informed about the company and its business. This can be done by making initial enquiries and doing some due diligence and research to ensure that this is a company which one wishes to participate in.
Becoming familiar with the financial operation and status of the company; including having the ability to read and understand financial statements and have a basic knowledge of accounting practice and material accounting standards, so that one has a thorough understanding of the company’s financial capacity and solvency.
It means being able to understand financial reports and glean from them the existing and future condition of the company. It also means being responsible to ensure that accurate reports are presented under the Corporations Act, to satisfy legislative requirements and to query any inconsistencies or potential issues.
All directors are expected to attend board meetings, unless, exceptional circumstances such as illness prevents their attendance. Further, a director must be alert and pay attention to the matters being discussed at board meetings and should be aware that they cannot be excused from liability on the basis that he or she did not pay attention to the proceedings.
It is possible for a director to delegate responsibilities usually performed by the director. However, the director is still responsible for the supervision of the delegate and their activities whilst performing such duties and responsibilities. These do not include signing off the final approval of accounts which must be done by the directors themselves.
The Corporations Act requires a director to act in good faith and in the best interests of the company and for a proper purpose. The interests of the company, in this wise, take precedence over individual interests. Duty is owned to the company, not to any particular individual. This includes encompassing the interests of the shareholders, to which the director has a responsibility, as it is their money the director is being responsible for.
In situations where there is one shareholder, which is the parent company, the director should keep in mind the interest of that parent company. The Corporations Act shows that a director is taken to act in good faith in the best interests of a wholly owned subsidiary if the subsidiary’s constitution authorises the director to act in the best interests of the holding company, the director does so in good faith and the subsidiary is not insolvent.
The interests of creditors should also be taken into account, particularly if the company is insolvent or approaching insolvency.
A ‘proper purpose’ is where the purpose is to the benefit of the company. An example of an improper purpose is where the purpose would be to the benefit of the director or someone else, such as using knowledge of a company’s new direction which, when publicly exposed, would affect the share price, for one’s own benefit. In another example, directors issuing new shares for a collateral purpose, such as delivering control of the company to a particular person, ensuring that the directors remain on the board or obtaining some financial benefit for a director.
The Corporations Act also requires that a director cannot improperly use their position or information obtained because they are, or have been a director, to gain an advantage for them or others or cause detriment to the company. This includes not applying the company’s property either for their personal benefit or for the benefit of another without the company’s authority (usually requiring shareholder approval or constitutional authorisation) and not making an unauthorised use of confidential information belonging to the company.
A director needs to take care that he or she does not incur a conflict of interest, where they may discover profitable business opportunities as a result of their position within the company. Aside from the potential legal complications of such activities, there are also the moral issues as well as potential debarment for crossing the legal barrier.
It is far safer to regard all corporate property (including information) as company property and comply with the Corporations Act in this matter. In reality, only if a director can demonstrate that the property or information does not belong to the company or is otherwise public, will the director be free to make use of it.
The director is also obliged to prevent company insolvency as best he can. This can be done by being aware of the financial status of the organisation and bringing any issues to the attention of the board and requesting action to be taken to resolve such issues.
The Corporations Act also requires that directors do not participate in falsifying records and information and exposing such activity where discovered.
Indeed, there are specific provisions where the director may become personally liable to the company or a third party creditor for the amount of the debt and any loss or damage suffered by the creditor in relation to the debt because of the company’s insolvency.
A director has certain defences. For example, he sincerely believes on reasonable grounds that the company was solvent or relied on information from a competent and reliable person whom the director believed, again on reasonable grounds, to be responsible for providing such information or did not participate on the management of the company due to illness and can show that he or she took all reasonable steps to prevent the company from incurring the debt.
In 2017, the Corporations Act was amended to provide directors with a defence to civil action for insolvent trading. "Directors will be afforded an exception from liability for insolvent trading, where the debt that the liquidator alleges had been incurred whilst the company was insolvent, was incurred in connection with a course of action that is reasonably likely to provide a better outcome for the company than the immediate