Becoming a company director

[ecs0set]

I have done some reading, Googling and PH searches on this but couldn't find many good answers on the PH forums...

I have been asked to become a director in our company. A proper registered director on the board, not just a thin job title. A small salary increase is attached.

There are 150ish staff, it's been going for 35+ years and I've worked there for nearly 30 years including 15+ on the management board. Including me, there will be 3 directors in total. The company is 100% owned by the MD (currently sole shareholder), is consistently profitable, has no company loans and employs an accountant to complete the annual return. The company insurance covers Directors and Officer's liability.

As we will be the first additional directors other than the MD, the AOA are currently being updated, as is the contract amendment / service agreement so I haven't seen all the details. Voting was mentioned but no mention of dividends / shares to replace my current profits-based bonus.

It sounds relatively safe, obligation wise. For those who have experience in such things, is there anything else I should be asking about?

[LooneyTunes]

Only do it if you are happy you will be able to comply with/fulfill your duties as a director.

Integral to that is ensuring that you are given the level of transparency into the company’s affairs necessary to do that.

[eliot]

unless you were getting dividends i cant see the value of it personally, given you mentioned a "small" payrise.
Of course, you can apply to PH for a powerfully built company director icon next to your name.

Edited by eliot on Thursday 11th January 10:42

[StevieBee]

On the face of it, it seems a solid opportunity and is always nice to be recognised in this manner. There's just a couple of things to watch out for.

You need to avail yourself of the Directorial responsibilities you will have that relate to corporate governance. This will be a joint and several responsibility which means if the MD or one of the other new Directors screws something up, you will be equally liable for any consequence regardless of it being your fault.

Also make sure you are aware of - and comfortable with - any financial liability you may be exposed to in the future. For example, if there's a cash shortfall, Directors are sometimes obliged to fill any gaps in cashflow.

Both responsibility and risk should be reflected in your remuneration. You mentioned a modest pay rise. In the absence of shares and thus dividends, you need to satisfy yourself that any pay rise is commensurate with added responsibility and greater risk.

Dividends are only payable to shareholders. As a non shareholding Director, you will not be entitled to any. In the absence of this, I'd be negotiating a decent bonus scheme.

And as this is the first time the Owner has appointed other Directors, you need to be alert to the fact that he may not be as fully prepared to share the running of the company as much as he thinks he is. It's his baby so think of it as you being a new boyfriend to his daughter. Some time may be needed to prove your worth.

You would also do well to establish why he is offering this position now? What's in it for him? Some business owners award Directorships as a type of golden handcuff to prevent good people from leaving. This is seldom justification to take such a position.

Beyond that, the only advice I'd give is not to become all 'Billy-Big-bks'. Adding the word 'Director' to a business card can sometimes affect people in the wrong way and given them an over-inflated sense of self importance. This rarely ends well.

HTH and Good Luck!

Edited by StevieBee on Thursday 11th January 10:58

[Mr Overheads]

I would insist that as part of the deal that the 3 of you all go on a Directors Responsibilities course together, the IoD run some as do many reputable Business Schools within Universities depending on where you are located.

Do that before being appointed. The MD may change his mind, or he may see the higher risk and want to share that risk more appropriately e.g. future share options say or perhaps sweat equity (i.e. each year you sit on the board you get X% of the company and hence a share of the dividends if the same class).

You coudl ask for some shares, no need to be dividend paying shares, can split capital into A shares with dividend rights and B shares with no dividend rights, but both A & B shares carry equal voting rights. So many 1000's of ways to structure share issues/remuneration for Directors.

[Ziplobb]

I would suggest this recognition should come with shares to reflect the additional responsibility and indeed give you a stake. Presumably after 35 years he is looking to take his foot of the gas and pass somemof his burden to others. If you were working at this level for many other companies very often there is a share incentive.

[FWIW]

eliot said:

unless you were getting dividends i cant see the value of it personally, given you mentioned a "small" payrise.
Of course, you can apply to PH for a powerfully built company director icon next to your name.

Edited by eliot on Thursday 11th January 10:42

I agree with this.

[ecs0set]

Thanks for all the helpful comments!

As stated, I have been on the management "board" (3-5 people) for some time. Operation of the business is transparent within the board with decisions and responsibility for the company levelled jointly. Therefore, I don't believe the day-to-day company responsibilties or actions will actually change, save for the formal obligations that come from the directorship.

I'll consider the other points, thanks again!

[Eric Mc]

ecs0set said:

Thanks for all the helpful comments!

I don't believe the day-to-day company responsibilties or actions will actually change, save for the formal obligations that come from the directorship.

And that makes ALL the difference.

Don't take on the legal responsibilities of being a named director of a company without

a) fully understanding what you are committing to

b) being rewarded properly for the MUCH bigger risk you are accepting

[StevieBee]

FWIW said:

eliot said:

unless you were getting dividends i cant see the value of it personally, given you mentioned a "small" payrise.
Of course, you can apply to PH for a powerfully built company director icon next to your name.

Edited by eliot on Thursday 11th January 10:42

I agree with this.

Keep in mind that as Director, you (potentially) have greater strength in leveraging shareholding that would then lead to access to dividends.

[Countdown]

ecs0set said:

I have done some reading, Googling and PH searches on this but couldn't find many good answers on the PH forums...

I have been asked to become a director in our company. A proper registered director on the board, not just a thin job title. A small salary increase is attached.

There are 150ish staff, it's been going for 35+ years and I've worked there for nearly 30 years including 15+ on the management board. Including me, there will be 3 directors in total. The company is 100% owned by the MD (currently sole shareholder), is consistently profitable, has no company loans and employs an accountant to complete the annual return. The company insurance covers Directors and Officer's liability.

As we will be the first additional directors other than the MD, the AOA are currently being updated, as is the contract amendment / service agreement so I haven't seen all the details. Voting was mentioned but no mention of dividends / shares to replace my current profits-based bonus.

It sounds relatively safe, obligation wise. For those who have experience in such things, is there anything else I should be asking about?

OP - a couple of questions (might actually be the same question)

1. What would you be doing as a Director that you're not already doing as a manager?
2. What's in it for the MD? Why do they want to make you a Director?

[iphonedyou]

If it's only a small payrise, then it's something of a vanity appointment for which you're taking on the additional statutory duties of a director. Has equity been floated by any of the parties?

[silentbrown]

Ziplobb said:

Presumably after 35 years he is looking to take his foot of the gas and pass somemof his burden to others.

Is he considering a sale of the company? Having a formal board of directors (rather than a sole director) may be more appealing to buyers.

[StevieBee]

silentbrown said:

Ziplobb said:

Presumably after 35 years he is looking to take his foot of the gas and pass somemof his burden to others.

Is he considering a sale of the company? Having a formal board of directors (rather than a sole director) may be more appealing to buyers.

...particularly if they are non-shareholding Directors who might block the sale if not to their liking!

[Supernova190188]

I suppose the only other thing you’ve got to think about is whether you need to sign up at the gym and get a bit of weightlifting in so that you fit in here properly!

[Simpo Two]

I see more downsides than upsides. And as someone said, what might their motives be?

[FWIW]

StevieBee said:

FWIW said:

eliot said:

unless you were getting dividends i cant see the value of it personally, given you mentioned a "small" payrise.
Of course, you can apply to PH for a powerfully built company director icon next to your name.

Edited by eliot on Thursday 11th January 10:42

I agree with this.

Keep in mind that as Director, you (potentially) have greater strength in leveraging shareholding that would then lead to access to dividends.

Interesting (genuinely), could you elaborate on how this might work?

[StevieBee]

FWIW said:

StevieBee said:

FWIW said:

eliot said:

unless you were getting dividends i cant see the value of it personally, given you mentioned a "small" payrise.
Of course, you can apply to PH for a powerfully built company director icon next to your name.

Edited by eliot on Thursday 11th January 10:42

I agree with this.

Keep in mind that as Director, you (potentially) have greater strength in leveraging shareholding that would then lead to access to dividends.

Interesting (genuinely), could you elaborate on how this might work?

As a Director, you have seat on the board and therefore a voice and influence in how the company is run. As such, you can bring to the board the idea that you are deserving of a shareholding. If your fellow Directors (who are in the same position) share the same view, then this can force the owner to at least consider it or force it to a vote. You may not win the vote but you have laid down a marker that can be revisited later, perhaps when the owner is in greater need of the support of the Directors for something.

The caveat to this is that the term 'Director' does not always equate to a seat on the board or any voting rights. In this case, your'e simply a senior manager by a different name.

[mattybrown]

Mr Overheads said:

I would insist that as part of the deal that the 3 of you all go on a Directors Responsibilities course together, the IoD run some as do many reputable Business Schools within Universities depending on where you are located.

Do that before being appointed.

This^^^

[LooneyTunes]

StevieBee said:

As a Director, you have seat on the board and therefore a voice and influence in how the company is run. As such, you can bring to the board the idea that you are deserving of a shareholding. If your fellow Directors (who are in the same position) share the same view, then this can force the owner to at least consider it or force it to a vote. You may not win the vote but you have laid down a marker that can be revisited later, perhaps when the owner is in greater need of the support of the Directors for something.

That could also lead to a very short directorship. Arguably a more likely outcome than laying down a marker.

(It would be foolish to assume that 3x new directors would get away with trying to bully the main shareholder.)