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How to become an effective director

DIRECTORS in Australia are currently facing an environment in which they are required to take more responsibility, particularly when it comes to understanding financial reporting requirements.
Directors cannot abrogate their own responsibility by relying solely on external advice in making decisions. While external advice should be considered, directors need to be sufficiently educated on all matters pertaining to the decisions they are making because, apart from the adverse consequences to the company and its shareholders, they can also be held personally liable.
Now more than ever it is important to understand the foundations of being an effective director. These foundations are based on having good personal and business ethics, learning not to take things for granted and having an enquiring mind when formulating decisions.
RSM Bird Cameron has a seven-point strategy for being an effective company director.
1. Be aware of the duties and responsibilities. There are more than 700 pieces of state and federal legislation in Australia that can make a director personally liable, both in a civil and criminal context. Becoming a company director is a role that carries significant duties and responsibilities and there are significant consequences for not meeting these duties.
2. Know your numbers. All directors are required to understand the entity’s financial position, including solvency considerations and financial reporting obligations. Directors should receive regular management accounts as part of their board papers and have an ability to query and clarify financial information that has been presented.
3. Learning is key. The old saying that you are never too old to learn is true. Business is always changing and you must keep up to date to contribute effectively to the company. Companies that are not up to speed will fall behind the rest of the business world and concede the competitive edge. You could also find yourself in breach of legislation by not being aware of changes. It’s important for directors to undertake continuous education, for example the Australian Institute of Company Directors course, which is an excellent way to do this.
4. Play an active role. Taking an active role and doing your own research are key ingredients to being a successful company director. Going to board meetings unprepared and with little to offer is not a positive strategy. If you cannot contribute in a meaningful way, due to time constraints or simply a lack of understanding of the issues, then it may be time to reconsider your position.
5. Know the business. Know both the company and the industry it operates in intimately. This is critical to knowing what the key drivers of the business are and provides the ability to contribute meaningfully to strategy discussions. Have a clear understanding of the key performance indicators, the risks and a clear direction of where the business is heading and how it will get there.
6. Work as a team. Working with a functional and dynamic team makes the role easier, as everyone is working towards a common goal. It is critical that board members express their thoughts, even when a particular point of view may be in the minority. It is equally important to express differing points of view in a courteous and respectful manner so as to fully explore the alternatives – thereby leading to good decision-making.
7. Encourage diversity on boards. The concept of diversity is not limited to gender, but includes diversity of thought, background, decision-making experience, qualifications and skills. Diversity is healthy for boards, as it can create a stronger team contribution and lead to better overall decision-making.
Being a successful company director does not go hand-in-hand with being appointed to the role. Company directors must be committed to continual self-improvement through research, education and focusing on teamwork and people skills.
Most of all, company directors must be flexible and adaptable to survive challenges within the company and external factors such as a difficult economic climate.

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