June 9, 2020 Back to basics: Directors’ Duties
Travel restrictions, business closures, furloughed staff, or even simply trying to maintain a close to normal service; whatever the business situation it would probably be fair to say that the last few months have been challenging. In a way this is when the true worth of a company director can shine through. It’s easy to lead when everything is going well; good directors lead well in the face of adversity.
Now with some restrictions starting to ease we can look forward to a gradual return to a more normalised way of business. Not that that will mean an instant reversion to how things were before. In fact, for a number of businesses life may never be the same again. But we can start to look at customer needs and supplier requirements alongside safe working practices for employees as we plan the future shape of our organisations.
While we are adjusting to a new normal some things remain unchanged. It may be tempting to cut corners, to make quick decisions without taking time to consider the consequences. And whilst there is a chance that those quick decisions may have an initial impact, there is also a chance that over the longer term they may not prove to be in the best interests of the company. This is a time for recovery but it is also a time when directors should ensure that they are acting in accordance with the duties of directors as set down in the Companies Act 2006. These are:
- a duty to act within powers
- a duty to promote success of the company
- a duty to exercise independent judgement
- a duty to exercise reasonable care, skill and diligence
- a duty to avoid conflicts of interest
- a duty not to accept benefits from third parties
- a duty to disclose interests in a proposed transaction or arrangement
Directors looking to promote long-term viability may focus in on the duty to promote the success of the company, particularly when the Companies Act breaks this down into areas such as:
- the likely consequences of any decision in the long-term;
- fostering the company’s business relationships with suppliers, customers and others;
- the interests of the company’s employees;
- and the impact of the company’s operations on the community and the environment.
Nevertheless, if directors look solely towards promoting the success of the company and in the process step outside the powers allotted to them or lose sight of acceptable risk parameters then they are not only failing in their duties but also failing their organisations. This is a time of unprecedented challenge and change. It’s a time for bold and innovative leadership. But it is also a time for going back to basics, for ensuring that decisions taken are lawful and appropriate. Only then will companies truly have a chance to build a successful long term future.
