Alternative means of financing business activities are bringing innovative, new ways for businesses to expand. However, cost-efficient means of growing a business must not come at the cost of high quality corporate governance or the welfare of those affected by the business. Here we set out a reminder of the legal obligations of finance directors, and provide practical advice on how they in particular can respond to and be protected in the event of a work-related crisis.
Duties and pitfalls
Like any company director, a finance director has the duty to promote the success of the company. This duty includes considering the long-term impact a decision made by any director could have on the business, its employees, its customers, its suppliers, the surrounding community and the environment. Consequently this extends to organisations and their directors having the legal duty to put in place suitable arrangements to manage health and safety, using a common-sense and practical approach. How a company or organisation fulfils these duties will very much depend on the budget allocated to the systems and practices implemented by its board of directors, and in particular its financial director(s), whose decision is agreed upon by the board.
For the reasons above, finance directors are key to the strategy and success of a business, and as such their responsibility extends beyond ensuring compliance with financial regulations. However, obvious shortcuts to achieving a business’ success are also the offences for which financial directors could face criminal liability. These include: bribery, fraud, money laundering, financing terrorism and breaching health and safety regulations. Criminal sanctions which financial directors could face as a result of such offences range from financial penalties of £20,000 to imprisonment and/or director disqualification.
Protection during a crisis
If an organisation and its directors were to face an investigation, our recommendations below could assist with protecting the directors, and more specifically, the finance director.
- Seek assistance from the organisation’s directors’ & officers’ liability insurance (D&O insurance): D&O insurance is essential to fund any defence where a director does not benefit from a company indemnity. It can provide personal asset protection for the director and help cover the legal costs in preparation for an official investigation, or to defend against claims alleging gross negligence manslaughter, or breach of health and safety regulations.
- Keep informed of the duties and risk of criminal liability: All directors, especially the finance director, should attend regular anti-money laundering, bribery and fraud training conducted internally and externally, to keep abreast of legal updates and learn the lessons of industry peers. Equally, finance directors should also be present at health and safety briefings in order to remain aware of and assist with addressing any health and safety matters which may arise from practices and systems implemented as a result of budgetary decisions made by the finance director.
- Due diligence: Due diligence procedures proportionate to any identified risk of bribery or corruption should be in place to mitigate such risks and therefore the risk of criminal liability faced by any director, especially when engaging in business in reliance upon third party intermediaries.
- Cooperate with investigators: Cooperation with investigators is taken into account by investigators as a mitigating factor and may therefore reduce the level of find or other sanction. Knowingly or recklessly providing false information to investigators would be aggravating factors which could increase the level of sanction imposed.
- Prepare for interview: Those being interviewed by any enforcement authority should be familiar with all evidence that the authority is likely to consider in an interview. Finance directors would be advised to familiarise themselves with cost-related documents, such as tender responses, which may have impacted systems and practices and resulted in an incident. It is also advisable to seek legal advice as to which documents are or are not legally privileged when disclosing documents to investigators.
- Post-crisis opportunities: Post-incident decisions can often be an opportunity for a company and its directors to redeem their reputation and be an example of robust corporate governance. Alternative finance could therefore afford innovative means for finance directors to rationalise business costs, but for the benefit of improving existing business systems and practices.