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The 7 general duties of directors

Note: this article does not contain legal advice. If you are unsure of your legal/fiduciary responsibilities as a company director, please seek advice from your legal counsel.

UK Companies Act 2006 prescribes 7 general duties all directors must observe. These are specific to UK company law, but they are quite sensible, and it might be sensible to follow them in spirit wherever you might be doing business (while of course observing local laws and regulation).

  1. Act within powers – meaning that directors should only do the things their company constitution (articles, shareholders’ agreement) allows them to do, and only for the purposes they were intended.
  2. Promote the success of the company. This objective is very instructive. Directors are not there to look out for their own interests, but to promote the success of the business itself. That is the job at hand!
  3. Exercise independent judgement. The purpose is for directors to act independently (to promote the success of the company) without being swayed by other interests – either those of the founders/management or other stakeholders.
  4. Exercise Reasonable care, skill and diligence. Being a director is a proper responsibility that should be taken seriously.
  5. Avoid conflicts of interest. Meaning: don’t do things that conflict you, and if you think there might be a conflict, discuss it openly with the other directors.
  6. Not to accept benefits from third parties. Do not get into a situation that could get you accused of being bribed and not having the company’s best interest at heart.
  7. Declare interest in a proposed transaction or arrangement. If there is a potential conflict of interest in relation to a specific transaction, you must declare this to the other directors.

Interestingly, in defining the role of a director, UK company law doesn’t distinguish between executive directors (“management”) and non-executive directors (investors, NEDs), despite their actual roles being vastly different. Given some of the corporate governance scandals seen in places like Carillion I am not sure that’s helpful, but that’s a discussion for another day. The key point is that – when it comes to the UK Companies Act, the role of the director applies equally to management and outsiders, and it is helpful to remember that it is not for one group to come to meetings feeling that their job is purely to educate another group, but for both groups (execs and non-execs) to come together as one to discuss how best to solve the most pressing problems of the business.