What is the role of a company's directors? A useful handbook, Standards for the Board, published by the Institute of Directors, describes directors as "custodians of the company's prosperity". As the book admits, that is a simple phrase which hides a range of apparently contradictory tasks. The directors need to be entrepreneurial, seeking out new markets and opportunities, while at the same time keeping the company under prudent control.

The board needs to know enough about the day-to-day workings of the company to answer for its actions. But the directors also need to be able to stand back from day-to-day management and maintain a long-term view. They must concentrate on the need to generate profits, while acting responsibly towards investors, employees and the wider community. Business scandals and controversies in the late 1980s and in the 1990s brought the issue of corporate governance under continued scrutiny. There was the Guinness share manipulation scandal of the late 1980s, that resulted in several well-known City of London figures going to prison. This was followed by the late Robert Maxwell's theft of his employees' pension funds, and the uproar over the salaries of chief executives of the privatised utilities. These resulted in three successive committees being set up under Sir Adrian Cadbury, Sir Richard Greenbury and Sir Ronald Hampel respectively to draw up rules for corporate behaviour.

The collective result was the Combined Code on corporate governance, which was made a listing requirement for companies quoted on the London Stock Exchange. The code lays out several principles for quoted companies. These include the separation of the positions of chairman and chief executive, the provision that at least a third of the directors should be non-executives, and that a remuneration committee made up of independent directors should set the directors' pay. But this guide on how to be a company director is not about the largest LSE-listed companies. It is about how to be a director of a growing business. The company might aspire to a stock market flotation or might have just achieved one.

But the problems of the small and medium-sized company are different from those of the groups that make up the FTSE-100. At the beginning of a company's life, its directors and owners are likely to be the same people. Getting the business off the ground will consume all the directors' attention. An appropriate board structure might seem far less important than mere survival. Bob Faulding, managing director of NBS Pennine, a Yorkshire-based supplier of stonework to the building industry, has only onefellow director. Board meetings take place over a beer. But after more than doubling employee numbers to 75 over the past two years, Mr Faulding now recognises he needs a formal board structure with more directors. "There are a lot of small businesses that revolve around one person," Mr Faulding says. "Companies like that are very, very vulnerable. You get too focused on the day-to-day problems and don't look at where the business is going." As companies begin to expand, and particularly when they seek increased outside investment, directors have to begin thinking about how the company is governed, rather than just managed. The directors need to begin separating their day-to-day tasks from their role as custodians of the company's long-term direction.

"There's a different mindset that goes with managing and with directing," says John Weston, head of director development at the Institute of Directors. What seems like a quick commercial success for the company might not be in its long-term interest. "You might say: that was a great sale but is it going to take the company forward? It's very easy to have your head down, running in one direction, only to find that it's the wrong direction." When it comes to approaching venture capitalists or considering a flotation, the directors will discover that the composition and competence of the board matters.

A recent study by McKinsey, the management consultants, found that the quality of corporate governance played an important role in determining investors' readiness to invest in a company. This guide explores a range of issues affecting directors of growing companies. We look at the legal and social responsibilities of directors. We discuss whether small and medium-sized companies need to separate the positions of chairman and chief executive, as recommended by the London Stock Exchange, and we look at the roles of the chief financial officer and the company secretary.

We examine whether smaller companies need non-executive directors, how they can find them and how much non-executives should be paid. We look at the relationship between the company and its auditors, how to deal with the Inland Revenue and Customs and Excise, and decipher some of the technology options for streamlining accounts.

We explain how board meetings should be run, how the directors' performance should be assessed, and make the case for creating sub-committees. We offer advice on how much directors need to know about information technology. We look at share option schemes and whether they are appropriate for smaller companies. Finally, we examine the issue of corporate succession. Setting the company on the road to success may be an all-consuming task" but every board needs to think about who runs the company next.