What does a Director do?

It’s not just a position you give to someone on their business card. Being the director of a company has its responsibilities and by law every private company in New Zealand requires at least one of them.

Essentially the duty of the director is to ensure the smooth running of the company. Well, what does that mean in practice?

Directors are not just a ‘rubber stamp’.  They don’t just go along with everything that management puts forward. They have to be fully informed about the company’s operations and the industry in which the company operates, and keep up-to-date with how the business is performing. They need to make their own enquiries in relation to proposals that have been put forward by management.

At all times directors should act honestly and should not use their position as a director to improve their own financial position.

The law expects directors to be diligent in the discharge of their duties. This means that they should:

• Obtain information in relation to the operations of the company
• Inspect factories, retail shops, warehouses, outlets and business premises owned by the company
• Attend board of directors’ meetings and be an active participant in those meetings
• Ensure that management is adequately reporting to the board of directors and not using the directors as a ‘rubber stamp’
• Ask questions and enquire as to the meaning of various matters submitted in reports to the directors
• Ensure that management is adhering to the company’s business plan
• Review Key Performance Indicators, periodic financial statements and the budget and cash flow forecasts to ascertain whether the company is performing in a satisfactory manner
• At all times be aware of the company’s requirements not to trade whilst insolvent
• If unsure, insist that the board appoints an external expert to advise the directors on any particular technical issue that has been submitted to the directors for their approval

Directors should ensure that meetings are held regularly to keep abreast of what’s happening.