What are my responsibilities to the shareholders?
Generally, a director is required to comply with certain legal duties when acting as a director, and these duties are owed to the company rather than the shareholders. New, statutory directors' duties have been introduced under the Companies Act 2006. These are mostly similar to the previous duties, but many directors are taking legal advice to ensure none of their current practices, policies and procedures could lead to breaches. The new duties are:- To promote the long-term success of the company (rather than the interests of, say, the majority shareholder)
- To act within the company's constitution and powers, ie only do things the company is authorised to do, and that they, the directors, have power to do (rather than the shareholders)
- To exercise independent judgement (ie not take instructions from a third party or, for that matter, a dominant director, on how to run the company)
- To exercise reasonable skill, care and diligence.
- To avoid conflicts of interest, ie any situation in which his interests may conflict, directly or indirectly, with the company's, including where he exploits any of the company's property, information or opportunities.
- Not to accept benefits from third parties that are offered because he is a director (or because he did, or omitted to do something as a director).
- To declare any direct or indirect personal interest in any proposed transaction or arrangement to be entered into by the company to other members of the board, either at a board meeting or in writing.
The Companies Act specifies a (non-exhaustive) list of factors the directors must take into account in order to show that they are promoting the success of the company, including:
- the likely consequences of any decision in the long term;
- the interests of the company's employees;
- the need to foster the company's business relationships with suppliers, customers and others;
- the impact of the company's operations on the community and the environment;
- the desirability of the company maintaining a reputation for high standards of business conduct; and
- the need to act fairly as between members of the company.
Directors should also consider whether, given their company's circumstances, additional or alternative factors should also be taken into account. In deciding which factors to take into account, the weight to be given to each, and the actions they should take in consequence, the directors must exercise due skill, care and diligence.
The shareholders can relieve the directors of many of their duties, in the articles of association, by authorising them to carry out certain acts that would otherwise be a breach. In the case of conflicts of interest, other independent members of the board (ie those who are not personally interested, or connected to someone who is) can authorise a breach.
