DIRECTOR’S DUTIES

Chapter # 3
Corporate Governance
Usama Bin Iqbal
 Duty is a moral commitment to
something or someone.
 Responsibility is a condition of being
responsible.
 An obligation is simply a mandate to do
something that does not connote any
moral or ethical dimension.
 DIRECTOR’S DUTIES

To act within the powers conferred;

 to promote the success of the company for the benefit of its
members. Directors must have regard to the long term and
wider factors such as relationships with employees,
suppliers, customers and the impact of the company’s
operations on the community and environment;
 to exercise independent judgment;
 to exercise reasonable care, skill and diligence;
 to avoid conflicts of interest;
 not to accept benefits from third parties;
 to declare an interest in a proposed transaction with the
company.
Director Duties
Classification

1. 2. 3.
The
The duty of The
fiduciary
care and statutory
duties of
skill duties
director
 1.
The duty of
care and
skill  A director need not exhibit in the
performance of his duties a greater
Director is not bound degree of skills that may reasonably
to bring any special
qualifications to his
be expected of a person of his
office. He may knowledge and experience
undertake the  A director is not bound to give
management in
complete ignorance continuous attention to the affairs of
without incurring the company. He is to attend to all
responsibility for the matters which requires his attention
mistakes. He is not
as per circumstances
bound to take part in
the conduct of the  A director is allowed to delegate his
company’s business, duties to officials
but so far as he does
undertake it, he must
use reasonable care
 2.
The
fiduciary
duties of
director
 A fiduciary is a person who holds
a legal or ethical relationship of
trust with one or more other
parties.
 Typically, a fiduciary prudently
takes care of money or other
assets for another person.
 In dictionary it means a trustee.
 2.
The
fiduciary
duties of
director
 A duty to act in good faith
 A duty not to act for improper
Fiduciary duties purposes
impose higher
standards of conduct
 A duty not to engage in
on directors than the corporate opportunities
common law duty .
They are the means  A duty not to fetter future
of monitoring
directors’ actions to discretion
ensure that they do
not abuse their
powers.
 A duty to act in good faith
 To act in the best interest of the company
meaning looking after the short-term and
long-term interest of the share holder .
 It is not the law that anyone holding the
office as a director of a limited company is
for that reason alone to be released from
what otherwise would be regarded as
fiduciary responsibility owed to those in a
position of shareholders of the same
company.
Preface of A duty to act in good faith

 A case of Swinfen Eady J….

 Shareholders offered to sell their share to company
director and chairman at £12.50 per share.
 The directors and chairman negotiated with a third
party to sell their share at a higher price.
 In this case director with no obligation to disclose
the deal to shareholders.
 There was no question of unfair dealing.
 The director did not approach shareholder.
 The shareholder approach the director / chairman.
Preface of duty not to act for improper purposes

 Issuance of Additional share change the

structure of company.
 In Punt V Symons company the director
had issue new share to five additional
shareholders.
 This led to abuse of director powers.
 These share were not issued for the
benefit of firm
 A duty not to act for improper purposes
 Where directors have acted in breach of their contracted
purposes or in breach of purposes inherent in their duties.
Examples
 Issuance of new shares to additional shareholders to pass a special
resolution.
 Issuance of special shares carrying special voting rights in order to
prevent a takeover bid (decision in good faith)
 Which was ratified through general meeting of the shareholders
 Controversy arise that improper purpose can be legitimized
 the propriety (accepted standards of behaviour or morals) or
impropriety of purpose should be determined by
 The interest of the shareholders whether they are a majority or a minority
 The interest of the company as whole
 In reference to the power allowed to the directors
 A duty not to engage in corporate
opportunities
 Another method of regulating directors’
duties is to impose a requirement whereby
directors should not seize a corporate
opportunity for themselves nor make a
secret profit
 A duty not to fetter future discretion
 Directors must not anticipate in advance as
to how they will vote in the future.
 They must seek company’s consent before
they can seek to fetter their future
discretion
 If they act bona fide and enter into a
contract as to how they will vote at future
board meeting the courts will uphold such a
contract
 3.
The
statutory
duties

 Directors in discharging their duties, have a statutory duty at all

times to
 act honestly
 use reasonable diligence 
 Secondly, officers and agents of the company cannot make
improper use of any information acquired by virtue of their
position to gain, directly or indirectly,
 an advantage for himself or for any person, or
 to cause detriment to the company. 

 The statutory duties of a director, officer or agent are in addition

to, and not in derogation of, any other written law or rule of law
relating to the duty or liability of directors or officers of a
company. A director’s breach of this statutory duty can be a civil
breach rendering the director liable to the company for any profit
made by him or for any damage suffered by the company.  The
 BOARD DUTIES AND FUNCTIONS

 Reviewing and guiding corporate strategy, major

plans of action, risk policy, annual budgets and
business plans; setting performance objectives,
monitoring and implementation and corporate
performance; and overseeing major capital
expenditure, acquisitions and other divestitures.
 Monitoring the effectiveness of the company’s
governance practices and making changes as
needed.
 Selecting, compensating, monitoring and, when
necessary, replacing key executives and
overseeing succession planning.
 Aligning key executives and board remuneration
with the longer term interests of the company and
 BOARD DUTIES AND FUNCTIONS

 Ensuring a formal and transparent board nomination

and election process.
 Monitoring and managing potential conflicts of
interest of management, board members and
shareholders, including misuse of corporate assets
and abuse of related party transactions.
 Ensuring the integrity of the corporation’s accounting
and financial reporting systems, including the
independent audit and appropriate systems of
control are in place, in particular systems for risk
management, financial and operational control, and
compliance with the law and relevant standards.
 Overseeing the process of disclosure and
 Securities markets

Berle
SHAREHOLDERS

and
Institutional
Investors

power
Voting
Means
Board of Directors
Dividends
Supervisory power

Model of Employees
Wages

Labour
Corporation
(management and
Dept capital
Lenders

Owners
physical capital) Interest payments
(market rates)

PUBLIC GOODS
hip and
TAXES
Control Suppliers
Suppliers
National &
Local
Government
Customer
Customers

Adapted from: M. Blair, Ownership and Control (1995)