Introduction
When you create a limited company, the future steps include creating a board of directors. A group of people with a variety of skills who should have the best interest for your business at their core.
So how do you attract good directors and set up a process that works for all stakeholders to give assurances of adequate controls?
This starts with clear governance. Being a director for any form of organisation is a serious undertaking. It is far more than a title and a boastful post for LinkedIn.
Even if a director is unpaid, they still want assurances they will not be open to reputational damage by joining your board. If a potential director does not do some due diligence, that doesn't bode well for their integrity. It also points to someone who lacks the real experience and knowledge to be an effective board member.
So how much extra admin is this?
It sounds more daunting than it is. No one likes reading long documents. A decent set of board documents are consise, clear and direct. These should also be in line with the Memo and Art for the organisation. So, no need to repeat rules and guidelines already set out. But do not assume everything is covered in your Memo and Arts. Check:)
If you start off with a good base, you will find these can be managed annually and can comfortably scale as your business grows. Also, as with any formal company documentation, it adds to your attractiveness for potential investors.
1. Terms of Reference (ToR) for the board. - This document is basically the rules for the board. It lays out:
- The number of board members.
- The appointment, duties & voting rights of board members.
- Set's out the role of the chair, vice chair etc.
- How breaches of the company rules are treated.
- Frequency of meetings and format of them. Minimum no. of directors. required for a meeting (Quorum) etc.
- AGM format and rules.
- Management of minutes.
This shouldn't be a long document. It lends itself to bullet points and should be at a high level. Usually, it is approx. 2-5 pages maximum. It might be that a separate document is required to go in-depth into certain board roles.
2. Board Code of Conduct. This compliments the ToRs for the board. It is not mandatory, but helps to put some checks and balances to board members for them to sign. As such no more than 2 pages. It should list out the conduct befitting your board members. Therefore, if a breach is suspected, a fair review can be conducted as the director cannot claim they didn't know about anti-bribery rules, for example.
3. Equality, Diversity and Inclusion policy. This is usually a 1-3-page document which should follow the most recent legal requirements for your country. Plenty of free on-line templates to adapt for your organisation.
4. Functional ToRs. As your business grows you will want to set up controls and operational summaries for your departments. Such as finance, operations, legal, production, HR, marketing etc. The board will want to know that things like spending levels, procurement procedures are documented. Also, for the board to appreciate what business decision may need to be escalated to them. E.G. a major £1 million investment in a new IT system, for example.
5. Staff hand book - This can have other names but essentially covers the management of employees and contractors.
6. ToR for Audit committee - Even if not a listed company your company will get to the stage when it will require an external annual audit. This document covers the role of the audit committee which is usually a mixture of Board and staff members. It should also outline the management of risk for the organisation. It will follow many of the headers for a Board's ToRs.
Other documents to consider
Depending on the type of organisation there will be other documents to consider. For example, a tech company may want to have a document covering the protection of cloud services or patent/intellectual property.
- A disaster recovery plan to outline the process for power outages, IT issues, natural disasters, pandemics etc.
- Details on any ISO or other international standards/regulations required for your business.
- A risk register. This lists out the threats and risks for your business. This can change over time and be impacted by new regulations or new markets.
- A policy on shareholders and dividends. Health and Safety policies etc.
- Finally, for social enterprises and charities, they can have a Statement of Financial Intension. This document covers the financial management of the organisations.
Note many of these documents will be interrelated. For example the Audit committee ToRs will refer to the Risk Register. The Board ToRs should reference compliance with the EDI. There should be logical connections applied.
Final points
It is important to start simple, get your board ToRs documented first. This will give potential board members some comfort that you take due diligence seriously.
Plus gets you comfortable with the responsibilities of being a company director. Documenting board minutes for example can be used as evidence, if ever accused of something. The minutes can be valuable to maintain the truth regarding decision making.
As you start to add other documents, look to similar more established companies. What are they doing? Are there controls you should be seeking guidance on?
I have reviewed corporate governance for major retailers through to social enterprises. What is key, is that what is set out in a procedural or control document is manageable. If you set up too many rules for the board, how practical will these be to monitor? If the language is unclear or too waffly will a point get lost? Don't be afraid to use tables to present data in a clearer format.
Keep it concise, clear and to the point.
I have a link to another post on board minutes which you might find useful:
If you do want a consult on creating or updating your corporate governance do get in touch : darryl@darrylbannon.com
