Being a board sceptic

Written by Joseph F.X. Zahra, 27 August 2014

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The pace has slowed down drastically these last eighteen months, but for a time a number of former senior bank executives and semi-retired accountancy firm partners were being regularly contacted to sit on boards of newly registered companies with foreign shareholders. The phone call usually followed this pattern – foreigners are registering a company in Malta and “you know, they are looking for one or two Maltese directors. It does not take much time… three, perhaps four board meetings a year. Nothing much, really… are you interested? You know, they are not prepared to pay much… but it will not take much of your time….what do you think?” I must say that a few retired executives accepted these positions… some of them regretting doing so later.

The concept of a board director on these newly registered companies is rather skewed towards having a number of part-timers giving in their name for such high risk positions. Most of these are not competent or knowledgeable to do so, nor do they have the tools or mechanism to contribute and monitor the company’s operations. Even worse, others are bullied by arrogant entrepreneurial executive directors who would have decided on Malta as a jurisdiction on the bases of cost (include fiscal) considerations. The stakes are high… not only for the non-executive director who most of the time has not clue what is happening behind the scenes, but also for Malta’s reputation as a serious jurisdiction.

Board directorship goes further than the “attending three or perhaps four meetings a year”. I have in my blog listed over the years the numerous risks involved in board membership. However, it is necessary to have ones’ eyes widely open to the motivation and expectations of the founders of this newly registered business. A check-list for the approached director should include: will the board institute any committees – audit, risk, compliance, remuneration? Will the appointment of key positions (particularly CEO and CFO) have board approval? Will all directors be involved in the design of the strategic plan? Will there be regular contact between the board directors and the senior executives of the company? How does the board appoint external auditors and other consultants? Keep your eyes open for related party transactions. Of course, I am assuming that you have yourself run a due diligence on these entrepreneurs, hoping of course that who introduced you to them has done the same.

There is no need to be a sceptic on how persons are chosen to sit on boards of foreign owned Malta registered companies. All you need to do is go through this preliminary acid-test check list, and feel confident that you are making the right decision.

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