Corporate Governance & Directors' Responsibilities

It's practical as much as legal. There are three key issues which I have raised many times over the last few years: curiosity, common sense and the smell test.

The law matters, of course. But how should directors and senior managers build these principles, and other similar ideas, into their everyday roles?

Because, in the end, liability, accountability and responsibility sit — or, in an ideal world, should sit — with every director, whether full-time, part-time, non-executive or executive.

Passing the buck won't work, certainly not if the courts become involved. And don't forget reputation management: bad news travels fast.

1. Be Curious: The Danger of Groupthink

As directors, you need to stay curious. Challenge assumptions. Speak up. Don't be seduced by groupthink or the comfort of consensus.

Make lots of noise, however uncomfortable it makes you feel.

Because when you stop asking "why?" and put your head under the pillow, bad things can happen. Ultimately, responsibility for those decisions may rest with you.

When in doubt, take advice. This applies even more if you are a sole director. After all, how can you know everything?

2. Apply Common Sense: The Dark Matter of Business Law

It was a comment about common sense, or the lack of it, that reignited my interest in how directors and boards operate.

Not necessarily in large PLCs or multinational organisations, but within the millions of UK small and medium-sized enterprises (SMEs), which make up approximately 99% of UK businesses.

For many years, I wrote and spoke under the tagline: "The #commonsense #lawyer with mismatched shoes."

I also wrote and lectured about common sense as the "dark matter of business law". It was, and remains, of particular interest to me.

Why dark matter? Because it surrounds us, yet no one pays it much attention.

Too often, we look for complex answers when common sense may be more useful, or at least equally valuable.

3. The Smell Test: Legal Doesn't Always Mean Right

"It's legal" isn't the same as "it passes the smell test."

Too many boards tick boxes and miss the point.

Is there a balance between simply following processes and doing the right thing? And where does the law fit in?

If something seems smelly, however you choose to define that, it probably deserves closer scrutiny. No policy can cover up bad judgment.

Ask yourself: Would this still smell right in front of my grandmother?

That is a two-line summary of the smell test developed by Mr Justice Owen more than 20 years ago. It should be better known.

Write It Down: The Importance of Keeping Records

"Write it down. Keep a record."

It sounds like a simple and obvious piece of advice.

Yet I wonder how many hundreds of millions of pounds have been spent on professional fees because someone failed to do exactly that.

And that includes millionaires and billionaires just as much as SME owners.

Keeping a clear record of the questions asked, advice received, alternatives considered and reasons for a decision can be invaluable when that decision is examined months or years later.

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