Unlocking the Code: What do the changes mean for you? Continued...

This blog continues to consider the impact of the changes contained in the new UK Corporate Governance Code.

Time Commitment

No minimum time commitment for directors is prescribed by the Code, but the new Main Principle B.3 states:

All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively

Individuals who are non-executives in one company will often be executive directors in another – and vice versa. It is generally thought to be a good thing that an executive gets experience of the workings of another company and another industry.

However, it is important that the demands on the individual are realistic – the Code says that the board should not agree to a full-time executive taking on more than one FTSE 100 company non-executive directorship or the chairmanship of such a company.

A more encompassing guideline is that board members should limit their board memberships consistent with their ability to discharge their responsibilities diligently. More than three to four directorships could be burdensome, and may result in absences at board meetings and a lack of ability and willingness to act quickly in a crisis.

Worth noting on the topic of time commitment, is this comment by Ed Marks, President of Marks Consulting Inc.:

A director’s role in a troubled company is very different from that of a director of a healthy business. The increased emphasis on directors assuming larger roles in managing a company’s affairs means that their responsibilities and time commitments must also increase. Troubled companies require deeper involvement from their boards

Also bear in mind: risks of incurring director liability may rise when the number of board memberships increase beyond a manageable level.

The issue of time commitment links to the new emphasis placed on performance evaluation in the 2010 Code. Part of the appraisal of individual directors should ask the question, are they giving the job the time it requires?