The duties of directors of companies are found in the common law and in the Companies Act.
In terms of the Companies Act, not only registered directors owe these duties towards the company. The duties now also extend to alternate directors, prescribed officers, and members of board committees. This position naturally has far reaching implications for these officers of companies who do not necessarily have a seat on their company’s board.
As a quick reference guide, directors owe the following fiduciary duties to their company:
- The duty not to exceed the powers as set out in the Memorandum of Incorporation;
- The duty to exercise their powers for a proper purpose;
- The duty to exercise an independent and unfettered discretion;
- The duty to avoid conflicts of interest, which includes:
4.1 The duty not to make secret or incidental profits;
4.2 The duty not to take up corporate opportunities for personal gain;
4.3. The duty not to compete with the company; and
4.4. The duty not to misuse confidential information; and
- The duty to act with care, skill and diligence.
Where a director breaches these duties and the breach causes harm to the company, the company will amongst others be able to claim damages from the director.
By disclosing his interest in another business a director may avoid breaching his duty to avoid a conflict of interest, provided the disclosure is done in writing and sets out the nature and extent of that interest.
The duty to act with care, skill and diligence can likewise be regarded as discharged if a director makes appropriate enquiries and obtains advice from experts and skilled advisors- this being the application of the business judgment rule.
Whilst fiduciary duties may be regarded as onerous and in some instances even deter persons to accept the responsibilities thereof, it is regarded as necessary and in fact an imperative to ensure effective boards lead their companies to sustainability and cultivating good corporate citizenry.
For specialist advice on directors’ duties, training and induction sessions for directors contact Cindy Jonker who heads up the Corporate and Commercial Law Department at Goldberg & de Villiers Inc. on 041 501 9806 / email@example.com