International Governance:The Risks You Face as a Global Director

As companies continue to look for opportunities in global markets, directors from diverse jurisdictions are hired to serve on the boards of foreign businesses as well as domestic ones that have operations and assets in other countries.

Enterprises across the world look for directors from other jurisdictions for any number of reasons. Hiring board directors from other countries can help to build investor confidence, for example. Likewise, an enterprise that is headquartered in a different jurisdiction but with a subsidiary in the US or Europe could seek directors to gain expertise and credibility. The director may have valuable international or local geographic expertise regarding business objectives, strategy, operations and risk management.

Nevertheless, serving as a director on the board of a global enterprise can bring major challenges. It’s true that during the past few years corporate governance laws and regulations have started to converge across regions, but there remain critical international differences regarding the responsibilities and liabilities of directors.

These risks can be formidable for the unwary and the range of liabilities faced by a board director can be significant and extensive. Directors can be accountable for a host of often unforeseen issues, some obvious but others maybe not so. These can include fraud, competition and anti-trust issues, health and safety, financial reporting matters, tax issues, environmental law, data protection regulations and local litigation rules, to name but a few.

Consequently, directors have to be acutely aware of their roles and obligations when working in a different jurisdiction. They need to surround themselves with international and, importantly, local advisors who will be able to help them understand and navigate the local risk environment.

These local advisors will be able to consider the risks and ensure board directors unfamiliar with local laws and regulations put the most effective risk and insurance solutions in place. They will give directors the risk insights they need to make strategic decisions for the business without compromising best practice.

Local legal advisors will be well versed in domestic corporate governance structures and will be able to help with business planning strategy, risk strategy and mapping, and key management decisions.

They will ensure directors unfamiliar with the territory are aware of responsibilities and mechanisms that are in place to protect them. Discussions between legal advisors and board members should focus on building awareness of the risks they face and consider how those risks should be best dealt with. In addition, advisors will help to ensure the correct frameworks are in place to prevent issues occurring that could easily have been avoided. It’s important that anyone thinking of serving on foreign boards or boards of companies with foreign operations need to:
• Understand local culture. Other jurisdictions may have different expectations of directors and cultures of governance.
• Quickly grasp the local laws that govern directors’ roles and responsibilities and the potential for liability.
• Understand how business is conducted in that particular jurisdiction.
• Ensure they have all the useful local contacts to understand their risk landscape. This is key as local knowledge is invaluable, built up over years of experience.

Despite issues such as the financial crisis of 2008 and the COVID-19 pandemic, it’s clear globalisation is set to continue as businesses look for market opportunities in different jurisdictions. This has led to a greater demand for directors with international and sector experience (often in countries the company operates in rather than its jurisdiction of incorporation).

Board directors’ roles are becoming ever more complex as rules and regulations in different jurisdictions evolve. Understanding the obligations in each jurisdiction is not only key to ensuring the liability of the directors is managed, but also essential for the protection of the clients of the business or investors. As a result, the role of the legal advisors on the ground has never been more vital.

What follows is the expert opinion on the roles of global directors from x18 IR Global members from across the world. They address critical issues for global directors relating to their own jurisdiction, from corporate governance to business culture. Their responses demonstrate the huge number of differences that directors face worldwide.