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Directors in the firing line

An article earlier this year alleged directors are overpaid for the hours they work. I beg to differ. A reality of today’s world post GFC – and post health & safety and environmental legislation – is directors carry a higher level of personal risk than they ever have in the past.  

One problem for directors is they do not have control of the day-to-day activities of a company and therefore are largely required to rely on board reports, discussions during board meetings, and asking insightful and probing questions, in order to identify areas of risk. 

When the tide turns and things go wrong, it is the directors who are often held responsible and whose reputations are trashed; innocent until proven guilty presumptions are thrown out of the window.  The more high profile the director, the more likely they are to be blamed for what has gone wrong. Add being a female director into this equation can be like the opening of the duck shooting season.  

The increased level of reputational risk for directors is not unique to New Zealand; globally board positions carry a significantly higher level of personal risk than they used to.

The days when prominent offenders would have their heads displayed on spikes outside public buildings are long gone. Yet, metaphorically at least, this is the mentality that emerged in the wake of the financial crisis, with increasingly vitriolic demands for the punishment of those charged with failing to prevent risky practices. 

It seems trite to say this, but high-performing companies need highly qualified directors, people who are able to work with a skilled management team to develop transformation strategies to enable companies to survive and grow. And if companies are focused on saving a few dollars by penny-pinching on remuneration, they cannot be expected to achieve the direction required to ensure long term success. 

Risk reward is only part of this equation. In what is trendily called a ‘disruptive’ world, the skills base of directors can never be static. And it is far from being a cushy role. Another obvious challenge to directors is to break down any tendency to select fellow board members they are comfortable with and remain strongly focused on diversity and inclusiveness. 

Overall the role of a director is one of the most challenging positions within a company and the risk versus reward equation is – in my view – not currently weighted in the favour of attracting and rewarding highly skilled directors. To suggest otherwise is demeaning.

Joanna Doolan is a partner with EY and an advisory board member with Global Women. The views expressed are her own and do not necessarily represent those of EY [email protected] 

Board of directors photo courtesy of IrvinePythons.com

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