Written by Alice Payne
Posted on 09/02/2016

The key reasons you should run a director search

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When researching a company to understand its credit risk there are a number of traditional methods you can use, including:

  • exploring its website;
  • reading financial reports;
  • conducting a news search; and
  • looking at its credit history.

But people often forget how important – and revealing – a director search can be.

Financial data should always be the primary resource for gathering insight into an organisation. You need to understand, in detail, the company’s financial health, credit ratings and payment history; hard data should be your initial focus. In the UK, resources such as the Prompt Payment Code can provide valuable industry feedback on an organisation’s payment behaviour. Signatories are also likely to be more committed to prompt payment just through having signed up.

The link between company directors and success

However, it’s the company directors who establish the ethics and culture of an organisation, as well as its financial, operational and organisational standards. Success filters down from the top, so it’s valuable to understand as much as possible about those in charge to get a comprehensive indication of credit risk. This rings particularly true if the company has been established by the current director.

What a director search can show

A director search can reveal a range of information – from credit risk summaries of all appointments to director details, their employment history and company resignations.
Indeed, employment history can be particularly insightful because it shows the timeframe in which a director has worked at previous companies – you can then use this information to cross reference the financial status of those companies at the time. It also indicates the type of working cultures they have experienced – and which may have moulded their directorial style. For example, have they worked for an aggressive hedge fund or a progressive start-up? And how might this influence their present company’s culture?

Revealing insight

A director search will also show whether a director has resigned from any directorships. For a potential credit risk indication, it’s worth researching why. For example, you can look into how those companies were performing at the time and whether their credit ratings have since changed. Depending on the results, this employment history may have implications about a director’s work ethic and capabilities; if a company experienced financial difficulties around the time of resignation but has since improved its performance and financial status, this may not bode well for the director.

Organisational insight

A director search isn’t just useful for finding out about a director’s career history and how it may influence their current company. It can also have interesting implications about the cohesion of a company.
A critical piece of insight you can gain from a director search is understanding how long directors stay in post. If there’s a high director turnover, you’ll want to find out the reason for this attrition. It could indicate that the company is experiencing leadership difficulties, or that employees find themselves at odds with the company’s culture and values.
In addition, a director search can also reveal a company’s organisational structure – indicating whether it’s predominantly flat or hierarchical, and the leadership culture this will likely foster. It’s also useful to assess how this will fit with your company. And of course, make sure to check how the financial status of the company has changed since the director joined.

Red flags

One of the most important aspects of a director search is providing an opportunity to check the director is legally compliant. Although this will likely be rare, if your research reveals that a director is disqualified, personally bankrupt or currently subject to a bankruptcy restriction order, then it’s illegal for them to hold a current directorship.

How to source director information

There are numerous different resources you can use to conduct a director search – from government databases like Companies House to full-service options like Graydon. Our Company Director Search will give you a clear, accurate and up to date view of over six million director and company officer appointments within UK registered companies. It is the only director search that will provide you with a credit risk summary of all active companies, making it the most comprehensive UK Company Director Report available.

When searching for an indication of credit risk, it pays to have the most in-depth information available – committing to a business relationship without fully understanding the level of risk involved.