Responsibilities of a company director

Responsibilities of a company director

Everyone aspires to be a director of a company. This is a noble aspiration. It may be that you have been appointed a company director of a company to be listed on the stock exchange. Congratulations! But before you rejoice you need to appreciate the duties and responsibilities that are expected of you. Over the last 20 years, we have witnessed a growing number of memorable corporate collapses which in many instances have been directly attributable to the behaviour of directors.
These collapses have invariably caused financial grief to workers, investors, suppliers and customers alike. Such tragic events have caused public outcry for more accountability from company directors and this has pushed governments to arm company regulatory bodies with ever-increasing powers to enforce corporate governance.
Being appointed as a director of a company, whether the business entity is large or small, you have now taken on a number of significant legal duties associated with being a director which can land you being fined or being charged with criminal conduct if you behave wrongly.
There are statutory duties that are expected of each director of a company.

A director must act within the powers enshrined under the company’s constitution. The most important part of the company’s constitution is the articles of association which has an important set of rules for your company and for your board.
In most jurisdictions when you register a company, you may use the model articles of association available for new companies or alternatively, you may have to draw up your own tailored articles normally with the help of a legal advisor.

Therefore as a director it’s imperative that you familiarise yourself with the articles of association as they may constrain your decision-making powers in certain ways. If you exceed your powers, then related decisions could be reversed and you might even have to compensate the company for any resulting financial losses.
The other duty of a company director is that of promoting the success of the company. As a director you must act in a way that is considered to be in good faith, and this would be most likely to promote the success of the company for the benefit of its members or shareholders as a whole including minority shareholders.
When making decisions, directors must not only consider owners of the company but must also consider the likely consequences of their decision to various stakeholders, which include employees, suppliers, customers and the community. It’s very important that they also consider the impact of their decisions, in the long term, on the environment and on the reputation of the company.

The duty to promote the success of the company brings with it a number of implications. The directors decisions will now only have to be justified on the basis that they are for the best interests of the company, not on the basis of what works best for certain executives or shareholders.
Directors should be broad minded in the way they evaluate those interests by taking cognisance of the interests of other stakeholders rather than embracing a narrow financial perspective that is good for shareholders only.
The third major duty requires directors to exercise independent judgement. Directors are meant to develop their own informed view on the company’s activities. They should not simply implement the directives of other parties such as major shareholders.

It is the directors’ responsibility to make independent decisions by relying on the knowledge or judgement of other directors or experts. A director needs to form his/her own view before making or supporting a board decision. This will require some effort on the part of the director to be familiar with key aspects of the company’s activities.
The other major duty is that of exercising reasonable care, skill and diligence. Gone are the days when directors could be appointed purely for their name or reputation without the expectation that they would actually do any work as board members. Directors are now expected to exercise reasonable care, skill and diligence in their role.
The exercising of reasonable care, skill and diligence is measured on the basis of what a reasonably diligent person with the same general knowledge, skill and experience would be expected to do. If you are a director and you also possess specific professional training or skills, such as a lawyer or accountant, then you will be held to a higher standard in related issues than less qualified board members.

The last legal duty relates to the need for directors to avoid or manage conflicts of interest which may affect their objectivity. There are certain instances when the directors’ decision might be affected by conflicts of interest. If such situations arise, it is essential that a director discloses this to fellow board members.
It will then be up to the other non-conflicted board members to decide how to manage or approve the conflict and therefore maintain the integrity of the board’s decision-making process.
Conflicts of interest usually arise in situations where the director has relationships of a business or personal nature with persons or entities that are affected by the company’s activities or it might be in situations where the director may be considering taking advantage, on a personal basis, of property, information or opportunity which belongs to the company.
Receiving gifts or benefits from third parties could also be a potential threat to a director’s objectivity. It is therefore very important that as a director you observe your statutory duty to disclose any direct or indirect interest in proposed or existing transactions or arrangements with the company.

The Board of Directors should ensure that a record of the meetings is kept as proof that they have fulfilled these legal duties. The minutes of board meetings will provide a record of the board’s decision-making process.
By law, these minutes must be kept for a certain number of years. If you have no record of your meetings proceedings then it may be difficult for you to remember if you fulfilled your directors’ duties in respect of some key decision, but however if you have a record then the minutes can provide that vital evidence of the decision making process.

  •   Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy, advanced performance management and entrepreneurship.
    He is the Managing Consultant of Shekina Consulting (Pty) Ltd and provides advisory and guidance on leadership, strategy and execution, corporate governance, preparation of business plans, tender documents and on how to build and sustain high-performing organisations.
    For assistance in implementing some of the concepts discussed in these articles or in facilitating workshops or seminars please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062 .

  Stewart Jakarasi

 

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