Duties of directors - company management, Business Law and Ethics

Duties of Directors:

The duties of directors are usually considered under two broad headings, namely-

i. Duties of care and skill at common law, and

ii. Fiduciary duties as enunciated by courts of equity.

1. Duties of Care and Skill

The directors' duties of care and skill have been formulated in a series of cases brought against directors in order to make them liable in negligence for the manner in which they conducted the company's affairs. These duties were summarised by Romer, J. in RE CITY EQUITABLE FIRE INSURANCE CO LTD as follows:

i. A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience.

This rule prescribes a duty which is partly objective ( the standard of the reasonable man) and partly subjective (the reasonably man is deemed to have the knowledge and experience of the particular director). It may also be expressed by saying that, if a foolish director makes foolish decisions resulting in loss to the company, he cannot be liable for negligence. It would be unreasonable to expect a foolish director to make wise decisions. However, if the director made very foolish decisions resulting in loss to the company, he will be liable in negligence since it is not reasonable to expect a foolish director to make very foolish decisions. On the other hand, a wise director will be liable if he makes unwise decisions, since it is unreasonable to expect him, a wise man, to make unwise or foolish decisions.

Posted Date: 1/12/2013 4:51:06 AM | Location : United States

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