Almost half of all directors (45%) said that the stress of their jobs often kept them awake at night with the stress while 36% said their jobs were damaging their family lives. As a result, one-fifth of company directors said that they have seriously considered quitting.
Wrestling with red tape
So what is causing so many directors to question whether the effort is really worth it?
Asked to identify the worst aspects of life as a director, the biggest single answer was ‘dealing with with red tape’ (33%), followed by ‘poor work-life balance’ (30%) and ‘personal legal risk’ (17%).
Amongst SME directors, red tape was cited as the worst aspect of their working lives by 34% of respondents compared with just 24% of directors of larger companies.
As well as its apparently deleterious effect on directors’ personal lives, company directors also identified the growing volume of red tape as a serious danger to the prosperity, and even the survival, of their businesses. Almost two-thirds (63%) described the growing costs imposed on them by new legislation as a ‘severe threat’ to their businesses, while almost half (48%) said that their companies could not afford to keep up with the costs of compliance.
In both cases, the smaller a director’s company, the more likely they were to agree with the statements. For example, 66% of directors with nine or fewer or employees described red tape as a ‘severe threat’ to their business, compared with 56% of those in 1000+ employee businesses, while 58% of the smallest companies said they were struggling to afford the cost of compliance against just 23% of the largest companies.
The research reveals that the sources of this bureaucratic nightmare are diverse. The raft of new employment and anti-discrimination legislation introduced since the Government signed the Social Chapter of the European Union’s Maastricht Treaty in 1997, the growing body of health and safety rules and regulation and data protection rules have all taken their toll, but the biggest single burden for businesses, large and small, is dealing with the taxman, identified as one of their three greatest administrative headaches by 43% of company directors, followed by general commercial legal issues (38%), regulation/compliance (37%), health and safety (31%) and employment law (27%).
However, although all company directors complain about it, the red tape burden affects companies in different ways, depending on their size. For example, general compliance with regulation is the single biggest issue for companies with over 100 employees, cited by 41%, while for the smallest companies, tax is the overwhelming issue, cited by 61% of directors with nine of fewer employees. Meanwhile, the burden of employment law falls most heavily on on companies with between 250 and 999 employees, for whom it is the most commonly complained of issue (49%).
These figures are “very worrying,” said Mark Wyatt, CEO of TakeLegalAdvice.com. “We undertook the research to see exactly how businesses are coping with the avalanche of legislation which is piling down on business. But even we were surprised by the level of despair out there from directors who are just trying to do their jobs.” Wyatt said that the figures in the research were representative of the make-up of legal cases coming on the website and that the Government seriously needed to review the situation
While ‘legal risk’ was given as the third worst aspect of being a director, and almost three-quarters (72%) generally felt that increasing legislation is putting them in a “legally risky position”, the survey also revealed dangerous levels of ignorance amongst directors about the legal risks they face and, in particular, their new responsibilities and liabilities under the new Companies Act, two of the most controversial provisions of which are due to come into force next month.
From October, it will give the right for individual shareholders to sue company directors for breach of duty, which previously was only available in cases of fraud. At the same time, the duties of company directors will be widened beyond their existing obligation to promote the success of the company to also take account of the interests of its employees, the environment and the community.
Seventy per cent of directors and senior managers admitted to being ‘not very well informed’ about the Companies Act, a lack of knowledge that could prove costly. Of the 26% of directors who said they were ‘knowledgeable’ about their additional responsibilities as laid down by the Companies Act 2006, just over a third (34%) said they has taken steps to limit their personal liability, either by taking legal advice (72%), transferring assets into their partner/spouse’s name (16%) or by moving assets offshore(11%).
Lawyers warn that while transferring assets offshore may not be necessary, directors should prepare for more litigation in future. Robert Haldane, corporate partner at City law firm Stephenson Harwood says: "Putting personal assets offshore may be effective if they are genuinely beyond reach, but it seems a a rather extreme course of action to take. It would be more sensible to look at taking out or increasing Directors and Officers (D&O) insurance cover and paying due regard to what the Companies Act 2006 requires.
"I am not sure that the new Act will necessarily lead to more company directors actually being deprived of their personal assets, but there is greater risk that they will be sniped at more regularly and the costs of defending such actions may be considerable. The Act will draw more attention to the opportunities to sue directors and it is likely that more people will have a go."
More generally, respondents identified health and safety law and employment law as the biggest legal threats to their businesses, but many directors are also unaware how breaches of the law, by their company, could lead to them personally being criminally prosecuted. Almost two thirds (64%) were unaware that breaches in Competition Law could result in them ending up with a criminal prosecution, closely followed by Product Liability 61%, Insolvency Law 59%, Data Protection 56% and Tax 41%. This lack of knowledge is “extremely worrying,” said Wyatt. “It emphasises why it is extremely important to have access to the right legal advice and is one of the key reasons why we saw a gap for a site which puts people in touch with the right legal specialists who can help companies keep on the right side of the law.”
Exorcising the entrepreneurial spirit
The survey also revealed that barely any UK businesses have confidence in the Labour Government’s recent promise to cut red tape, with only 2% expecting the burden to lighten in the foreseeable future situation against 79% who expect the situation to deteriorate further. A little under two-thirds (64%) said that the Government was “hindering” their businesses, while only 5% said the Government was helping them.
Indeed, less than a quarter of British business now believe that Britain has a better bureaucratic environment than Europe or the United States while almost 40% say that the bureaucratic demands are worse in Britain. Perhaps unsurprisingly, just 6% said they thought that the Labour Party had the best policies for business, compared with 62% who said the same of the Conservative Party.
The effect of the rise in regulation in recent years is becoming clear. Already, 12% of companies responding to the survey said that they have sent work abroad to avoid the costs of compliance in the UK and 41% of companies said they would consider doing so. The larger the employer, the more likely they are to send work abroad. – 24% of companies with over 1,000 workers say they have already sent work overseas – but even the smallest firms are doing it – 8% of firms with fewer than 10 employees have sent work overseas’ while 42% of them are prepared to consider it.
Commenting on the report, Ruth Lea, Director of the Centre for Policy Studies and a Governor of the London School of Economics said she believed the survey points to a genuine fear that the growing weight of regulation imposed by Government may discourage the UK’s entrepreneurial spirit.
”I am appalled but not surprised by the astonishing evidence unearthed about the effect of red tape on British business,” she says. “This proves what we have been saying for a decade, that red tape is killing the entrepreneurial spirit in this country. Firms cannot start, flourish and prosper if regulations and legislation are growing exponentially as they are now. The fact is fewer new companies are being created now than they were 10 years ago and the TakeLegalAdvice.com report shows why”, she says.