Press Release

With rewards come new risks for company directors

15 August 2007

The financial rewards for directors of the largest UK companies may be great and getting greater, but new legislation which comes into effect in October will mean extensive new responsibilities and uncertainties for them and for all other company directors, says ACCA (the Association of Chartered Certified Accountants).

A recent survey published by the Hay Group suggested that the average remuneration of the directors of FTSE 100 companies has reached £1.2 million. This appears to support reports of a growing discrepancy between pay levels inside and outside the boardroom, at least in the top City companies.

And a new comprehensive report, published by ACCA today, called “A guide to directors’ responsibilities under the Companies Act 2006”, explains how the Companies Act 2006 affects the responsibilities of company directors in the UK, especially because the Act brings in a number of important reforms which have potentially serious implications for anyone acting as a company director, regardless of company type or size.

John Davies, head of business law at ACCA, says: “‘The new Act raises the bar in terms of the levels of skill and care that shareholders are entitled to expect from the directors of their company, especially those who are involved in specialist functions.

“It also breaks new ground by insisting that considerations of corporate social responsibility are integral to directors’ assessments of what is best for their company. The requirement for them to weigh up and reconcile potentially conflicting considerations is going to represent a new challenge for all directors in the years ahead.”

He adds: “At the same time the Act makes directors more accountable than ever. Individual shareholders are given new powers to bring legal actions against their directors for breach of their duties and directors may be liable to their companies if they include deliberately misleading information in their company reports.

“Potentially of greatest significance is the provision that investors in publicly traded companies who buy and sell company shares on the strength of misleading information contained in company reports may be able to sue the companies concerned for any financial loss they incur.”

ACCA’s guide to directors’ responsibilities under the Companies Act 2006 identifies the changes it makes to the decision-making process and to directors’ responsibilities and liabilities. The guide also contains a list of the individual offences that directors may fall foul of under the Companies Act and other legislation.

Davies, author of the guide, says: “These reforms amount to a decisive step forward in the law on directors’ duties and need to be taken seriously by all who hold appointments or are considering taking them on. The impact of the reforms will be greatest in those companies where the risks and rewards are highest. But most of the new rules apply to directors of companies of all types and sizes, including SMEs.”

And even if strict compliance with the letter of the law may sometimes seem gratuitous, many directors have in the past learned to their cost that take-over or insolvency can lead to them being held to account for past actions and omissions.

Notes to editor

1. ACCA is the largest and fastest-growing international professional accountancy body and has 296,000 students and 115,000 members in 170 countries.
   
2. ACCA experts are available for media comment on all aspects of UK and international accounting, auditing, tax, small business, environmental reporting, corporate governance, business law and public sector finance.
   
3. The report “A guide to directors’ responsibilities under the Companies Act 2006” can be found at ACCA’s website: http://www.accaglobal.com/pubs/publicinterest/activities/library/company_law/tech-tp-cdd.pdf