Directors Duty of Care

The corporate governance principles revolve around the directors’ duties and more importantly their fiduciary duty to act in the best interest of the company, avoid conflicts of interest and exercise a duty of care.

The duty of care requires directors to make a business decision in an informed manner and act in good faith for the company’s best interest. Directors must also avoid any conflict between duty and self-interest.

Companies Acts at present, the world over, have started codifying equitable duties of directors. The most ignored duties by the directors, that have caused governance issues would be;
# to promote the success of the company for the benefit of its members,
# to exercise independent judgement, reasonable care, skill and diligence,
# to avoid conflicts of interest.

Some examples of directors not acting with care and in the best interest of the company are;
1. Audit committee member arguing with auditors on an issue which they know is incorrect.
2. Promoting inadequate disclosures in the Annual reports to cover up deficiencies or inefficiencies.
3. Directors appointed with specific skills viz, accounting or legal, don’t use such skills and give reasonable care to benefit the company.
4. The director taking a cash loan or loan of equipment from a customer of the company free of charge, also not disclosing the loan to be approved by the company.
5. Directors getting the company to pay for their personal expenses/costs.
6. Independent directors using their office to arrange consultancies by third parties for an undisclosed commission.
7. Not surfacing impairment issues or loss events adequately for accounting purposes.

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About surenraj

“Views expressed are my own”
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