Why a statutory statement of directors’ duties?

“There are two ways of looking at the statutory statement of directors’ duties: on the one hand it simply codifies the existing common law obligations of company directors; on the other […] it marks a radical departure in articulating the connection between what is good for a company and what is good for society at large.” Rt. Hon Margaret Hodge MP MBE

“[…] the main purpose in codifying the general duties of directors is to make what is expected of directors clearer and to make the law more accessible to them and to others.” Lord Goldsmith

Directors' duties: overview

• Duties owed to the company: only the company can enforce them, or members acting on behalf of the company
• Duties owed by every person who is a director of a company
• Statutory statement provides a code of conduct on how directors are expected to behave, not a list of things to do
• Where duties overlap, cannot rely on one duty to act in breach of another: must comply with every duty that applies in any given case
• Not an exhaustive list of responsibilities of a director: other laws and regulations must also be followed
• Consequences of breach are same as those that would apply had the corresponding common law duty applied

• No hierarchy of duties
• No distinction between FTSE 100, substantial private groups orowner/managed
• No distinction between executive and non-executive directors
• Company by company
• Parent/subsidiary relationship

1. to act within powers
2. to promote the success of the company
3. to exercise independent judgement
4. to exercise reasonable care, skill and diligence
5. to avoid conflicts of interest
6. not to accept benefits from third parties
7. to declare interest in proposed transaction or arrangement

• “act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole”
• and in doing so have regard (amongst other matters) to:
• the likely consequences of any decision in the long term
• the interests of the company’s employees
• the need to foster the company’s business relationships with suppliers, customers and others
• the impact of the company’s operations on the community and the environment
• the desirability of the company maintaining a reputation for high standards of business conduct
• the need to act fairly as between members of the company

• Board to carry out risk assessment
• interpretation of the duties
• review of articles
• D&O review
• The Business Review and other external communications
• consistency between external messages and internal decision making
• Managing conflicts of interests in group situations
• duties owed to which companies?
• who needs to know of the changes?
• what steps need to be taken?
• policies/processes/training/delegated powers
• Evidencing board decisions
• changes in terms of reference
• board papers
• minute taking

• “The GC100 is of the view that directors are not currently, and should not     be, as a result of this legislative codification, forced to evidence their     thought processes whether that is with regard to the stated factors or any     other matter influencing their thinking” (para 4)
• No “one size fits all” solution
• Awareness of duties under CA 2006
• Board papers, rather than minutes, are the appropriate medium

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