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Top 5 things to know about being a director

Did you know that in NZ we have just under 1.1 million active and registered directors? 

NZ is consistently voted and regarded as the one of the easiest places in the world to do business. Where it is the directors who lead these companies by being at the helm of day to day management. 

So whether you’re an existing NZ director or thinking about being one, here are JH LAW’s top 5 things to know about being a director. Let’s get into it!

#1 Duties

Director Duties: Most directors would likely have heard of directors duties as prescribed by the Companies Act 1993 (Sections 131 - 138A). I encourage you to check these out, including a catch-all director duty to comply with the Act in general (all 436 pages). 

The obligation I’d like to particularly point out is the need for companies to hold records (Sections 189 to 191).

Written & Completed Records: Time and time again, I hear about businesses contemplating transactions without written resolutions; or getting all the signatures; or dating the contract; or scanning documents in case the hard copy is lost (the last one not so much of an issue these days). 

Another interesting form of record to keep is all communications to shareholders during the last 7 years (Section 189). This will be particularly noteworthy for any businesses using social media to communicate with its shareholders. 

Avoid Downstream Problems: Directors really do want to have systems in place to classify, store, secure, destroy and preserve records. Not just to protect the company against a potential fine under the Act (Section 374(2)(13-14)), but also to avoid any expensive and lengthy downstream company dispute. The amount of time that can go into finding bits of correspondence to support a certain position, because an agreement wasn’t duly executed in the first place, is just a problem companies do not need if push comes to shove.

#2 Leadership & Public Trust

Public Perception: How the world market sees your business is led by the directors. Ideally, we may wish for a diverse board of directors. However, in reality we have plenty of companies run by sole directors in NZ who understand the power of out-sourcing. Where, with the rise and use of social media, it only takes a short amount of time for someone new to get a good idea of the values and standards of a business.  

Skills & Retention: With NZ experiencing record lows of unemployment, we are certainly seeing increased retention efforts by management through a mix of shifting or sharing their focus from clients to employee experiences.

In other words, there can now be a bit more work for directors to do to attract and retain both clients and employees.

#3 Know Your Stakeholders

“Stakeholders? Do you just mean the shareholders?”

Who: Stakeholders, besides shareholders, include your lenders, customers, suppliers and vendors who can typically stay with the company longer than some shareholders.  

Why: Understanding who the stakeholders are can help directors not only understand current market demands, but uncover risks in any current or future proposed value proposition by the company. 

“A company cannot achieve a long-term profits without embracing purpose and considering the needs of a broad range of stakeholders. A strong sense of purpose and a commitment to stakeholders helps the company connect more deeply to its customers and adjust to the changing demands of society.” 

Larry Fink, CEO of Blackrock - the world’s largest investment manager with $9T AUM.

#4 Director Fees

Fees: Directors can certainly receive authorised remuneration payments for their services to the company (Section 161). 

Determining Fee Amount: The trickier question is often how much should directors get paid? Industry director fee comparisons aren’t always the easiest to find. You may like to look at the Institute of Directors website, check out annual reports of listed companies; or just ask your someone else in your industry. It can be surprising how much other directors are willing to share information in this regard

#5 Privacy

Public Disclosure: The NZ Companies Office shows the details of directors and where they reside. Providing the wrong details (and not keeping details updated) is considered an offence (Section 159(3)). 

Suggestions for Reform: This position has over recent years sparked chatter to change the law allowing directors to use a service address instead of their private residence. This is akin to what we see for directors in the UK, Canada, Hong Kong and Singapore. But for directors in NZ, we will have to wait and see.


Please reach out to Janey at janey@jhlaw.nz if you have any questions regarding the above. The above is purely for informational purposes, where JH LAW will need to determine if the above information is applicable or appropriate to your particular situation. 




 

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