It's a key question that companies should be asking as the number of mandates held by individual directors continue to be scrutinised - what value do the directors bring to your Board?
Substance regulations in Luxembourg are becoming increasingly stringent and one ongoing issue of concern is the level of scrutiny applied to directorship mandates. A circular from the Commission de Surveillance du Secteur Financier (CSSF) in August of 2018 pointed to the number of mandates that directors should, ideally, be taking on and the number of hours they need to dedicate to those mandates. The topic was raised in the context of regulated entities however as with many issues highlighted by the CSSF they do have a – usually positive – knock-on effect on unregulated vehicles and overall industry best practices.
Many Luxembourg companies should be prompted to ask if they are getting real value from their Board composition – and in what ways.
The company director
Board member and directorship comes with responsibilities and liabilities. Those in the job for a long time can attest to the long list of associated duties:
- representation of the company
- responsibility for the financial statements and taxes
- acting in good faith using confidentiality, common sense and applicable company articles and laws to look after the interests of the company and its stakeholders.
The role means taking ultimate responsibility for actions and omissions.
Directors in Luxembourg – whether they fulfil their role in addition to their day job or as a full-time function (independent directorship on multiple mandates) – have duties beyond the usual legal and regulatory compliance framework. As Board responsibilities evolve and complex vehicles launch, directors must show "added value" and fulfil a more challenging and supportive function by providing the necessary diverse expertise. Directors need to harness their experience, have deep knowledge of all applicable regulations and understand the potential impact to the structure they sit on. Being attuned to the potential effect of local regulation is where local and resident directors really make their mark.
Luxembourg associations such as ALFI (Association of the Luxembourg Fund Industry) and ILA (Institut Luxembourgeois des Administrateurs) make it possible for directors to undertake best practice training, access relevant literature and participate in workshops that help them stay up to date. However an overloaded or inactive director poses a real risk, as they are essentially a missing pair of eyes on your board. By accepting an appointment, directors have a duty to meet expectations by contributing, committing and actively participating in line with governance and other procedures in place. The law requires directors to exercise their duties in line with the degree of care, diligence and skill of a reasonable prudent person in a comparable position.
Every director should – in theory – run an annual or biennial gap analysis or good governance matrix exercise to really identify individual core areas of expertise, decisions made throughout the year and how valuable everyone's contribution really was
Key questions to ask
Is your board composition still relevant? Are there any gaps to fill? Do you need to bring in any more Luxembourg residents who truly have their feet in the local market, and are across the latest regulations such as GDPR, MDR, UBO, ATAD and so on?
Talk to us
What makes TMF Luxembourg directors different is our expertise particularly in the private equity and real estate space. A good proportion of our local specialists sit on boards. They are not overloaded with directorship mandates and can effectively apply their expertise – gained through daily work on multiple client cases – to the boards they sit on. Our experts are active directors who understand company operations and compliance, know how to bridge gaps and propose effective solutions.
TMF Group provides its staff with constant training to keep up with the latest developments in corporate governance. Our large pool of directors help to make sure that client compliance is taken care of.
If you want to discuss the added value a TMF Luxembourg director can bring to your board, contact us today.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.