The difference between company directors, and newspaper editors and proprietors

I must confess to a fascination with the Leveson Inquiry into the Culture, Practice and Ethics of the press.

Piers Morgan was in the witness box yesterday answering questions about his time as editor of the Daily Mirror. His evidence echoed that of James Murdoch given to the House of Commons Culture, Media and Sport Committee: he didn’t know what was going on in his organisation.

It’s something I hear a lot from company directors facing claims against them personally arising from the way their companies were run. “That was the Financial Director’s responsibility. I was out on the road most of the time selling” is a typical response when it comes out that financial shortcuts had been taken.

Unfortunately for directors, they are legally responsible for financial decisions taken even if they were not involved in the decision-making themselves. The courts take the hard-line view that directors should make sure they know about how the company is run, as that is what being a director is all about. If they are being kept in the dark by other directors, they should resign.

Many people see the title of director as a status symbol. Others view it as well-earned recognition for all the hard work they have put into their companies. However, a directorship is a legal role, it is someone who directs how a company is to be run. When they become directors, they take on many duties and responsibilities, as well as all the privileges.

If you think your company may be doing something wrong, take legal advice as to what you should be doing to protect your personal position. If you turn a blind eye, like newspaper editors and owners, it could be you in the witness box but, unlike them, it’s much more likely that you’ll lose your life savings for not taking action sooner.

Gary Cousins
Business Solicitor