UK: Non-executive directors – new ICSA guidance on care, skill and diligence

The Institute of Chartered Secretaries and Administrators has issued new guidance on the liability of non-executive directors in the context of the statutory duty to exercise care, skill and diligence.

The guidance suggests ways in which non-executive directors can approach their work to allow them to demonstrate to a regulator or court, if necessary, that they had taken appropriate steps to exercise care, skill and diligence in their role. It cites examples from the FRC's Guidance on Board Effectiveness which accompanies the UK Corporate Governance Code and was published in March 2011.

The guidance from ICSA includes that non-executive directors should:

• understand that more is expected from a non-executive director with a specific skill or specific experience;
• recognise that part of their role is to uphold high standards of integrity and probity, and to support the chairman and executive directors in instilling the appropriate culture, values and behaviours in the boardroom;
• understand the requirements of the Companies Act 2006 in relation to conflicts of interest, and gifts and hospitality and familiarise themselves with the company's policies on the same;
• insist on receiving high-quality information sufficiently in advance of meetings, which is accurate, clear, comprehensive, up-to-date and timely;
• speak to the company's executives at any time over any concerns they may have, and speak to the company's advisers (for example, the external auditor) if they consider it necessary; and
• appreciate that circumstances may arise such that they may need to consider resigning from a board.

The Guidance on liability of non-executive directors: care, skill and diligence  is available on the ICSA website.

For more information please contact members of the Herbert Smith Freehills' Corporate Governance Advisory Team.