Non-executive directors (NED) who are clients of the company secretarial services of London Registrars (http://www.london-registrars.co.uk) will be aware that there are various penalties that can be imposed on them in the event of their failing to carry out their duties. Now, new guidance on their liability has been issued by the Institute of Chartered Secretaries and Administrators (ICSA).

The released guidance particularly focuses on the duty to exercise reasonable care, skill and diligence, suggesting possible working practices for NEDs that also enable them to demonstrate, in a court of law or before a regulator, that all necessary steps had been executed by them to minimise their liability exposure.

With the UK Corporate Governance Code having placed an emphasis lately on the NED’s role, on the board and in its committees, new NEDs may not realise, and indeed may be shocked by, just how much of a time commitment the role demands if its expectations are to be fulfilled.

That’s why the guidance note, entitled ICSA guidance on liability of non-executive directors: care, skill and diligence, gives NEDs advice on the due diligence that should be undertaken before they join and are appointed to a board. The requirements of different boards call for different skills from NEDs, so that they can be sufficiently independent and confident to constructively challenge a board and provide the necessary oversight.

The guidance note outlines various areas of best practice for NEDs, including on preparations to provide independent oversight and constructive challenge, as well as on taking responsibility for their own continuous development and ongoing training. NEDs can also learn from the note about insisting on receiving information of a high quality, making decisions in an objective manner in their company’s best interests and avoiding conflicts of interest.

Policy Director at ICSA, Seamus Gillen, commented: “Becoming a director confers many privileges – of power, influence and status. But the position also carries great responsibilities. No director wants to make the kind of mistake that sees them lose their house, or their reputation, and even less go to jail.

“This new guidance directly addresses the most common question we receive – what do we need to do to stay out of trouble? It will help directors conduct themselves in a way which avoids lasting damage both to themselves and their company.”

London Registrars (http://www.london-registrars.co.uk) provides directors in UK organisations with all-encompassing business and legal advice, possessing in-depth expertise in such areas as process agency services and company compliance.