Roles and Responsibilities of Directors in Corporations
All corporations must have a director. Private companies have one director while public companies have a minimum of two directors. The need for a director is widely justified by the fact that corporations act as artificial legal units which cannot function by themselves. In most instances, they require other people to act on their behalf. According to company law, directors play the important role of managing the company’s affairs on behalf of the owners (Baxt, 2016). According to section 250 CA 2006 of the Company Act, directors include individuals who occupy the director’s position in whatever name.
Directors have various roles and responsibilities within a corporation. The roles of directors fall under fiduciary duties and duty of skill and due care principles. Primarily, courts consider directors as fiduciary, which means that they undertake to act for and on behalf of other stakeholders in certain matters (Stiles, & Taylor, 2001). Consequently, directors are subject to obligations that derive from this relationship like those imposed to trustees or professional advisors. Most importantly, directors should act in utmost good faith while representing the company; therefore, they should not abuse the stakeholders trust and confidence.
Secondly, the role of skills and the due care of directors evolves from fiduciary duties. Shareholders invest in a company and entrust directors with the responsibility of running it. Consequently, shareholders have a direct interest in the degree of skills that directors use in managing the business. The limited liability clause also requires the director to exercise their duties with due care to minimize risks or losses (Tomasic, Bottomley, & McQueen, 2002). The standards that govern the director’s operations are constantly revised to evaluate whether they match with their experience and background.
The directors also have particular responsibilities to play within a corporation. Primarily, they must act within their constitutional powers to safeguard the interests of all stakeholders. In most instances, the director’s acts are guided by the company’s constitution. As a result, they exercise their powers based on the provisions of the constitution. The constitution comprises the article of association and memorandum of association. Any acts beyond the company’s constitution are ultra vires and non-binding.
Moreover, directors are responsible for promoting the company operations as well as the achievement of its key objectives. They must promote actions or activities that they believe will benefit the stakeholders and ensure company success. Success encompasses the long run increase of the company value (Tomasic et al., 2002). Directors are fundamentally responsible for establishing a course of action that will lead to this success. This is achieved through exercising independent judgment coupled with due care and skills.
Directors are also responsible for avoiding conflict of interest within a corporation. They should always avoid situations where their individual interest conflicts with company interests. Conflict of interest is mainly evident in the exploitation of properties, information, and opportunity where a director opts to take advantage of the situation for selfish benefits (Stiles, & Taylor, 2001). This responsibility is overlooked where: the director’s situation cannot be regarded as causing a conflict of interest. The responsibility is also infringed where the situation was pre-authorized. Authorization can be through an article of association or shareholder resolutions.
The directors also have a responsibility of declaring their interests in the company’s arrangements. In cases where a director is interested in an arrangement with a company, they must declare the nature as well as the extent of such interests (Baxt, 2016). If there is a proposed transaction, there should be a declaration before it is completed. Existing transaction interests must be declared immediately. The responsibility of declaring interest is infringed in cases where the director’s interest in a transaction cannot lead to a conflict of interest or when other directors are aware of the interest
References
Baxt, R. (2016). Duties and responsibilities of directors and officers. Sydney: Australian Institute of Company Directors.
Stiles, P., & Taylor, B. (2001). Boards at work: How directors view their roles and responsibilities. Oxford: Oxford University Press.
Tomasic, R., Bottomley, S., & McQueen, R. (2002). Corporations law in Australia. Sydney: Federation Press.
