The work of leaders!

The work of leaders!

The one area of convergence in the vast majority of corporate legislation internationally is around the duties and responsibilities of directors and officers of companies (and generally other organisations). The twin duties include an implied (or explicit) fiduciary duty and the triple responsibility to act with care, skill and diligence.

 

To unpack these, firstly the concept of fiduciary duty is essentially the same as that used to describe the role of a trustee – this is the highest standard of care at either equity or law. The roots of the word “fiduciary” originate in the mind-set of a father looking after their child – the terms originates from the Latin fiducarius that means “to hold in trust”, this, in turn, is a derivative of fides meaning trust. As such it is both a legal relationship and a moral or ethical relationship based on confidence and trust between two or more different parties. “A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence” (Bristol and West Building Society v Mothew (1998).

 

The areas of convergence between various legal jurisdictions result in the following similarities:

  • Directors owe duties to the organisation and not to individual shareholders, employees or creditors outside exceptional circumstances;
  • Directors’ core duty is to remain loyal to the company, and to avoid conflicts of interest;
  • Directors are expected to display a high standard of care skill and diligence;
  • Directors are expected to act in good faith to promote the success of the organisation.

(Wikipedia.org/wiki/Directors duties)

 

To put it bluntly any director or officer in a company is, in essence, looking after the property of someone else – it is not theirs, regardless of whether they are a shareholder of the entity in question. To clarify a key point relating to the nature of ownership is vital to understand before progressing. A shareholder of an organisation ‘holds’ a share in the business but does not own the things that organisation owns – these are owned by the organisation. This point may seem blatantly obvious when put in such a straightforward manner but the main issue is how directors behave – they tend to behave as if they own the stuff the organisation owns as opposed to behaving as if they merely hold a share in the business and thus have not direct claim on the actual assets of the organisation. This misunderstanding (or misbehaving to be more accurate) has significant

Leave a Reply

Your email address will not be published. Required fields are marked *

%d bloggers like this: