The 7 duties of a director are crucial for ensuring responsible and ethical corporate governance. They outline the legal and ethical obligations that directors must uphold when managing a company.
Here's a breakdown of each duty:
The 7 Key Duties of a Director
| Duty | Description | Example |
|---|---|---|
| 1. Act within powers | Directors must act in accordance with the company's constitution (articles of association) and exercise their powers only for the purpose for which they were conferred. | A director using company funds for personal travel when the articles state funds are only for company operations violates this duty. |
| 2. Promote the success of the company | Directors must act in good faith to promote the success of the company for the benefit of its members as a whole. This often involves considering the long-term implications of decisions. | Making strategic investments in research and development to ensure the long-term competitiveness of the company is an example of this duty. |
| 3. Exercise independent judgment | Directors must exercise their own independent judgment and not simply follow the instructions of others, unless legally bound to do so. | A director should analyse a merger proposal independently rather than blindly following the CEO's recommendation. |
| 4. Exercise reasonable care, skill and diligence | Directors must exercise the care, skill, and diligence that a reasonably diligent person with the general knowledge, skill, and experience that the director has would exercise. | A director with a financial background should use their financial skills to critically assess financial reports. |
| 5. Avoid conflicts of interest | Directors must avoid situations in which they have, or could have, a direct or indirect interest that conflicts with the interests of the company. | A director who is also a major shareholder of a supplier company must disclose this and recuse themselves from decisions involving that supplier. |
| 6. Not accept benefits from third parties | Directors must not accept benefits (e.g., bribes, gifts) from third parties conferred because they are a director, or because of anything they do or don't do as a director. | A director accepting a lavish gift from a potential client in exchange for awarding them a contract breaches this duty. |
| 7. Declare interests in proposed or existing transactions or arrangements with the company | If a director has a direct or indirect interest in a proposed or existing transaction or arrangement with the company, they must declare the nature and extent of that interest to the other directors. | A director who owns a property that the company wants to lease must disclose their ownership interest to the board. |
Understanding and adhering to these seven duties is paramount for directors to ensure they are fulfilling their responsibilities to the company, its shareholders, and other stakeholders.
