The breadth of statute law that directly impacts directors has expanded significantly in recent years, as has the potential for the personal liability of directors. Directors can be held personally liable for breach of a range of duties, from fiduciary duties under general law to directors’ obligations under the Corporations Act to many specific statutory responsibilities, including under taxation law, environmental law and workplace health and safety law.

Contrast the widening potential for the personal liability of directors and the increasing statutory demands being placed directly on directors against the acknowledged role of a board. That is, to govern and oversee an organisation through the imposition of broad strategies, policies and objectives, to appoint and empower executives and to monitor, manage and report on strategy, performance, compliance and financials. Put simply, a board’s role is to focus on the ‘big picture’, yet directors can be found liable for specific breaches of duties.

How can a board fulfil its obligations of strategic and cultural oversight, while ensuring each director performs his or her duties? How can a board adequately empower management to deal with the operational detail while ensuring each director is adequately informed and aware? What will structural and cultural qualities assist in creating an adequate balance between directors’ knowledge of risk management issues without bogging the board down in operational detail?

The answers to these complex questions lie ultimately in the strength of leadership demonstrated by the board and its directors, both in establishing appropriate structural corporate governance as well as in developing a necessary corporate culture.

The following are critical elements of strong board leadership:

Clarity of roles and responsibilities - matched by adequate accountability.

Directors must not only be clear on their roles and duties but also the roles and responsibilities of others. Choosing the appropriate CEO is an important starting point, followed by a clear role description and division of responsibilities with the board, along with adequate reporting and accountability. The board must then ensure there is sufficient resourcing of all key roles and that personnel are empowered to do their job well. Skilled staff with clear role descriptions and strong accountability will ultimately play a crucial role in supporting and protecting the board and the organisation. Directors cannot and should not micromanage the business, so the directors must have confidence in the skill and dedication of their executive team.

The leadership and communication skills of directors are highly relevant to ensuring that management is empowered to perform its role well and that the flow of information is meaningful and complete.

Knowing when and how to ask questions are essential skills for directors.

Board committees can also provide significant support to the knowledge and operations of a board when the role of the committee and appropriate delegations and authorities are clear and consistent with the strategic process of the organisation. For example, the board needs to be clear and consistent on how issues with significant risk or strategic impact will be dealt with in practice. Further, the skills base and composition of the board must support the strong leadership required of the board.

A robust compliance framework and compliance culture

The cultural tone of an organisation is ‘set at the top’. The board must establish and demonstrate a strong compliance culture, which is supported by an adequate compliance framework prioritised by the board.
If directors ‘allow’ an offence to take place by tolerating a poor compliance culture, the organisation may be found guilty of an offence in some instances. Further, the strength of an organisation’s compliance framework may be relevant to the applicable penalty determined by a court for a breach of a statutory duty. The board must ensure that it receives adequate reporting in order to enable the directors to monitor and oversee the compliance framework and culture. Training of directors is important to ensure directors have a sufficient understanding of relevant laws to allow them to make adequate inquiries of management.
Directors must take the lead in ensuring that risk management, the compliance framework and the compliance culture remain adequate in practice. Leadership by the board must be real, both in practice and in theory, to the organisational culture the board wishes to cultivate.

Proactive and respectful leadership

Directors should be proactive in meeting their duties by actively monitoring compliance and due diligence programs, asking questions, being informed and holding executives accountable. Directors may need training and coaching to develop these skills and constructively perform their role. Being consistent in the manner of oversight is an essential element of satisfaction of directors’ duties as well as supporting harmonious and respectful relations between the board and management. Respect is a crucial element of the leadership style required of the board, to ensure the maintenance of productive working relations as well as demonstrating the appropriate organisational culture to all staff.

Strong communication

Honest, open and transparent communication is a strong element of good corporate governance. This depends, in part, upon the skills base of the board as a whole. The board must support the development of its own and the organisation’s strong communication skills.

Regular review and reflection

Organisations are not static; neither is the law nor relationships. For these reasons, directors must continue to question, to reflect and to develop their skill base and their ability to react to changing demands of their organisation.

Directors need to continue to:

• ‘pulse check’ the compliance culture;
• question whether the compliance framework is adequate in practice;
• monitor issues arising within the organisation to improve systems and processes; and
• supervise executives to ensure that the right people are performing the correct roles to the best of their ability.

While the stakes continue to grow in terms of the potential for director liability, the need for strong strategic vision and a performance focus continues to drive boards. The best directors can balance these competing demands by demonstrating strong leadership in setting, monitoring and overseeing compliance frameworks and cultures that support and protect the organisation and its directors while promoting the strategic direction and performance of the organisation. The strength of leadership and communication of each director is crucial to the success of the board.