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MEANING OF DIRECTORS DUTIES

https://en.wikipedia.org/wiki/Directors%27_duties

Directors' duties are a series of statutory, common law and euita!le o!ligations owed

 primarily !y mem!ers of the !oard of directors to the corporation that employs them. "t is

a central part of corporate law and corporate go#ernance. Directors' duties are analogous

to duties owed !y trustees to !eneficiaries, and !y agents to principals.

$mong different urisdictions, a num!er of similarities !etween the framework for 

directors' duties e&ist.

• directors owe duties to the corporation, and not to indi#idual shareholders,

employees or creditors outside e&ceptional circumstances

• directors' core duty is to remain loyal to the company, and a#oid conflicts of 

interest

• directors are e&pected to display a high standard of care, skill or diligence

• directors are e&pected to act in good faith to promote the success of the corporation

AUSTRALIA

General Law

Directors ha#e iduciary Duties under general law in $ustralia. (hey are:

• Duty to act in good faith and not to act contrary to the interest of the company

• Duty not to use power for an improper purpose

• Duty to a#oid conflicts of interest

• Duty to retain discretion

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Statutory Duties

Directors also ha#e duties under )orporations $ct 2**+:

• ection +-+: irrors the general law duty to act in good faith, in the !est interests

of the company and for proper purpose.

• ection +-2: Duty not to misuse position to gain ad#antage

• ection +-: Duty not to misuse information to gain ad#antage

• ection +-0: Directors !reach section +-+, +-2 and +- for gain and where the

conduct is reckless or intentionally dishonest. )riminal penalty will !e applied to

against director who !reach +-0.

UNITED KINGDOM

$cting within powers 1s.+7+ )$ 2**3

Directors are also strictly charged to e&ercise their powers only for a proper purpose. or instance, where a director to issue a large num!er of new shares, not for the purposes of 

raising capital !ut to defeat a potential takeo#er !id, that would !e an improper purpose.

4owe#er, in many urisdictions the mem!ers of the company are permitted to ratify

transactions that would otherwise fall foul of this principle. "t is also largely accepted in

most urisdictions that this principle should !e capa!le of !eing a!rogated in the

company's constitution.

Directors must e&ercise their powers for a proper purpose. 5hile in many instances an

improper purpose is readily e#ident, such as a director looking to feather his or her own

nest or di#ert an in#estment opportunity to a relati#e, such !reaches usually in#ol#e a

 !reach of the director's duty to act in good faith. 6reater difficulties arise where the

director, while acting in good faith, is ser#ing a purpose that is not regarded !y the law as

 proper.

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Promotin !om"any su!!ess

s.+72 )$ 2**, to promote the success of the company for the !enefit of its mem!ers as

a whole. "t sets out si& factors to which a director must ha#e regards in fulfilling the

duty to promote success. (hese are:

• the likely conseuences of any decision in the long term

• the interests of the company8s employees

• the need to foster the company8s !usiness relationships with suppliers, customers

and others

• the impact of the company8s operations on the community and the en#ironment

• the desira!ility of the company maintaining a reputation for high standards of 

 !usiness conduct, and

• the need to act fairly as !etween mem!ers of a company

(his represents a considera!le departure from the traditional notion that directors' duties

are owed only to the company. 9re#iously in the nited ;ingdom, under the )ompanies

$ct +<-=, protections for non>mem!er stakeholders were considera!ly more limited e.g.,

s.*<, which permitted directors to take into account the interests of employees !ut that

could !e enforced only !y the shareholders, and not !y the employees themsel#es. (he

changes ha#e therefore !een the su!ect of some criticism. Directors must act honestly

and in !ona fide. (he test is a su!ecti#e one?the directors must act in good faith in

what they consider?not what the court may consider?is in the interests of the company.

4owe#er, the directors may still !e held to ha#e failed in this duty where they fail to

direct their minds to the uestion of whether in fact a transaction was in the !est interests

of the company.

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Difficult uestions arise when treating the company too a!stractly. or e&ample, it may

 !enefit a corporate group as a whole for a company to guarantee the de!ts of a sister

company, e#en if there is no !enefit to the company gi#ing the guarantee. imilarly,

conceptually at least, there is no !enefit to a company in returning profits to shareholders

 !y way of di#idend.

@directors areA not reuired !y the law to li#e in an unreal region of detached altruism

and to act in the #ague mood of ideal a!straction from o!#ious facts which @sicA must !e

 present to the mind of any honest and intelligent man when he e&ercises his powers as a

director.

Transa!tions wit# t#e !om"any

By definition, where a director enters into a transaction with a company, there is a

conflict !etween the director's interest Cto do well for himself out of the

transaction and his duty to the company Cto ensure that the company gets as much

as it can out of the transaction. (his rule is so strictly enforced that, e#en where

the conflict of interest or conflict of duty is purely hypothetical, the directors can

 !e forced to disgorge all personal gains arising from it.

4owe#er, in many urisdictions the mem!ers of the company are permitted to

ratify transactions which would otherwise fall foul of this principle. "t is also

largely accepted in most urisdictions that this principle should !e capa!le of !eing

a!rogated in the company's constitution.

"n many countries there is also a statutory duty to declare interests in relation to

any transactions, and the director can !e fined for failing to make disclosure.

se of corporate property, opportunity, or information

Directors must not, without the informed consent of the company, use for their 

own profit the company's assets, opportunities, or information. (his prohi!ition is

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much less fle&i!le than the prohi!ition against the transactions with the company,

and attempts to circum#ent it using pro#isions in the articles ha#e met with limited

success.

5hat was regarded as a wholly unmeritorious claim !y the shareholders, @2*A held

that:

Ci that what the directors did was so related to the affairs of the company that it

can properly !e said to ha#e !een done in the course of their management and in

the utilisation of their opportunities and special knowledge as directorsE and Cii

that what they did resulted in profit to themsel#es.

  $nd accordingly, the directors were reuired to disgorge the profits that they made,

and the shareholders recei#ed their windfall.

(he decision has !een followed in se#eral su!seuent cases, and is now

regarded as settled law.

Com"etin wit# t#e !om"any

Directors cannot, clearly, compete directly with the company without a conflict

of interests arising. imilarly, they should not act as directors of competing

companies, as their duties to each company would then conflict with each

other.

Reme$ies %or &rea!# o% $uty

$s in most urisdictions, the law pro#ides for a #ariety of remedies in the e#ent

of a !reach !y the directors of their duties:

+. inunction or declaration

2. damages or compensation

. restoration of the company's property

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0. rescission of the rele#ant contract

=. account of profits

. summary dismissal

+7 $ Duty not to accept !enefits from third parties.

$ director must not accept financial or non financial !enefits from third parties.

ICAE' GUIDE TO T(E DUTIES AND RESPONSI)ILITIES OF

DIRECTORS

$ire!tors http://www.icaew.com/en/technical/!usiness>resources/legal>regulatory>ta&>

go#ernance/directors>duties/the>icaew>guide>to>the>duties>and>responsi!ilities>of>

directors

(his is a short o#er#iew of the key general duties of directors. ore e&tensi#e guidance

on the duties and responsi!ilities of directors is contained in ")$F5 guidance

Who is a director?

Gou will normally know if you are a director as you will ha#e formally accepted the

 position. 4owe#er, if you e&ercise sufficient influence o#er a company or act as if you

are a director, you may !e treated as a director for certain purposes e#en if not formally

appointed.

Should you be a director?

)ertain people are prohi!ited from acting as a director, including persons under + years

of age, !ankrupts, disualified persons and a person acting as auditor of the company.

Cregulation <. 5hile there is no mandatory ualification reuired to !e a director, a

director is reuired to perform the duties outlined !elow and so must !e capa!le of doing

so.

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What are your general duties as a director?

(he )ompanies $ct 2** sets out the se#en general statutory duties of a director. (hese

are listed !elow with some additional commentary.

• (o act within powers Cregulation +. (his reuires a director to comply

with the company8s constitution and decisions made under the

constitution and to e&ercise the powers only for the reasons for which

they were gi#en.

• (o act in a way the director considers Cin good faith is most likely to

 promote the success of the company for the !enefit of its mem!ers as a

whole Cor, if rele#ant, other purposes specified in the constitution.

Cregulation 2*>20. "n performing this duty, a director must ha#e regard to

all rele#ant matters, !ut the following are specifically identified in

legislation:

• the likely conseuences of any decision in the long termE

• the interests of the company's employeesE

• the need to foster the company's !usiness relationships with suppliers,

customers and othersE the impact of the company's operations on the

community and the en#ironmentE

• the desira!ility of the company maintaining a reputation for high

standard !usiness conductE and the need to act fairly as !etween mem!ers

of the company.

. (o e&ercise independent udgment, that is, not to

su!ordinate the director8s power to the will of others. (his

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does not pre#ent directors from relying on ad#ice, so long as

they e&ercise their own udgement on whether or not to

follow it.

0. (o e&ercise reasona!le care, skill and diligence Cregulation

2=. (his reuires a director to !e diligent, careful and well

informed a!out the company's affairs. "f a director has

 particular knowledge, skill or e&perience rele#ant to his

function Cfor instance, is a ualified accountant and acting as

a finance director, e&pectations regarding what is

Hreasona!le8 will !e udged accordingly Cregulation 2=.

=. (o a#oid conflicts Cor possi!le conflicts !etween the

interests of the director and those of the company

Cregulation *>. (he prohi!ition will not apply if the

company consents Cand consent meets the necessary formal

reuirements.

.  Iot to accept !enefits from third parties Cie a person other 

than the company !y reason of !eing a director or doing

anything as director Cregulation +. (he company may

authorise acceptance Csu!ect to its constitution, for 

instance to ena!le a director to !enefit from reasona!le

corporate hospitalityE and

7. (o declare any interest in a proposed transaction or 

arrangement Cregulation 2>. (he declaration must !e

made !efore the transaction is entered into and the

 prohi!ition applies to indirect interests as well as direct

interests.

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"n addition to these duties, a director has duties:

• to consider or act in the interests of creditors Cparticularly in times of 

threatened insol#ency Cregulation 2

• to maintain confidentiality of the company8s affairs Ca duty which to a

large e&tent follows from the general duties outlined a!o#e.

Duties of the company

Jf course the company itself has numerous legal duties. (hese include duties under the

)ompanies $ct itself, such as to maintain full and accurate accounting records and to

make rele#ant filings at )ompanies 4ouse Cincluded the annual accounts. "t also has to

comply with all other laws and regulations applica!le to it Csuch as ta& and employment

laws. $s the company acts through the !oard of directors, the directors are responsi!le

for ensuring compliance !y the company. Cregulation 2<

"n certain cases, directors are made specifically lia!le for !reach Cregulation - , for 

instance, in the case of accounting records, e#ery officer of the company is lia!le to a

fine, imprisonment or !oth .

Directors as employees

$ director may also !e an employee of the company Cand is then typically referred to as

an He&ecuti#e director8. (he general duties of directors outlined a!o#e apply eually to

e&ecuti#e directors, !ut an e&ecuti#e director will also !e !ound !y the terms of his

(his note only co#ers the general duties of directors under the )ompanies $ct 2** and it

is !eyond the scope of this note to identify all circumstances where a director may !e

 personally lia!le for acting as a director. By way of illustration only:

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• as noted a!o#e, under the )ompanies $ct, a director may !e lia!le for failure !y

the company to make reuired filings at )ompanies 4ouseE

•under the "nsol#ency $ct +<-, a director may !e personally lia!le for wrongful or 

fraudulent trading in the conte&t of insol#ency of the companyE and

• the !oard and each director has responsi!ilities under the 4ealth and afety at

5ork $ct +<70, !reach of which may result in criminal sanctions on a director.

"n certain circumstances, a director may !e disualified from !eing a director 

under the )ompany Directors Disualification $ct +<-.

DIRECTORS RESPONSI)ILITIES AND DUTIES

http://www.iod.com/guidance/!riefings/cg!is>directors>duties>and>responsi!ilities

Res"onsi&ilities in!lu$e*

(he !oard of directors of a company is primarily responsi!le for:

• determining the company8s strategic o!ecti#es and policiesE

• monitoring progress towards achie#ing the o!ecti#es and policiesE

• appointing senior managementE

• accounting for the company8s acti#ities to rele#ant parties, e.g. shareholders.

(he managing director/chief e&ecuti#e is responsi!le for the performance of the

company, as dictated !y the !oard8s o#erall strategy. 4e or she reports to the chairman or 

 !oard of directors.

Duties

Statutory Duties

Directors need to !e aware that they are personally su!ect to statutory duties in their 

capacity as directors of a company. "n addition the company as a separate legal entity is

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su!ect to statutory controls and the directors are responsi!le for ensuring that the

company complies with such statutory controls.

(he )ompanies $ct 2** codified certain common law and euita!le duties of directorsfor the first time. (he $ct sets out se#en general duties of directors which are:>

• to act within powers in accordance with the company8s constitution and to use

those powers only for the purposes for which they were conferred

• to promote the success of the company for the !enefit of its mem!ers

• to e&ercise independent udgement

• to e&ercise reasona!le care, skill and diligence

• to a#oid conflicts of interest

• not to accept !enefits from third parties

• to declare an interest in a proposed transaction or arrangement

(he statutory duties that replace the fiduciary or euita!le duty are interpreted in

accordance with the pre#ious case law which remains rele#ant. (hese statutory duties

cannot !e seen in isolation !ecause in addition a director will !e su!ect to a wide range

of regulation and legislation including the "nsol#ency $ct +<-, the )ompany Directors8

Disualification $ct +<-, the 4ealth and afety at 5ork etc $ct +<70 and the )orporate

anslaughter and )orporate 4omicide $ct 2**7.

(he company secretary as chief administrati#e officer will !e responsi!le for the

 performance of many of the administrati#e duties imposed under the )ompanies $ct

2**. $ pri#ate company is not reuired to appoint a company secretary and where no

company secretary is appointed the duties and responsi!ilities of the company secretary

will fall on the directors.

Directors may !e lia!le to penalties if the company fails to carry out its statutory duties.

4owe#er, they may ha#e a defence if they had reasona!le grounds to !elie#e that a

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competent person had !een gi#en the duty to see that the statutory pro#isions were

complied with.

Jne of the main statutory responsi!ilities falling on directors is the preparation of theaccounts and the report of the directors. "t is the responsi!ility of the directors to ensure

that the company maintains full and accurate accounting records. (his includes the

 preparation of a !alance sheet and a profit and loss account for each financial period of 

the company, and the presentation of these to shareholders and, su!ect to #arious

e&emptions, the filing of the accounts and report of the directors with the Kegistrar of.

DUTIES*

http://asic.go#.au/regulatory>resources/insol#ency/insol#ency>for>directors/directors>

what>are>my>duties>as>a>director/

6enerally, in addition to the reuirement to ensure compliance with general and specific

laws applying to your company8s operations, your primary duty is to the shareholders.

4owe#er, if your company is insol#ent, or there is a real risk of insol#ency, your duties

e&pand to include creditors Cincluding employees with outstanding entitlements.

General duties

6eneral duties imposed !y the )orporations $ct on directors and officers of companies

include:

• the duty to e&ercise your powers and duties with the care and diligence that a

reasona!le person would ha#e which includes taking steps to ensure you are properly

informed a!out the financial position of the company and ensuring the company doesn8t

trade if it is insol#ent

• the duty to e&ercise your powers and duties in good faith in the !est interests of the

company and for a proper purpose

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• the duty not to improperly use your position to gain an ad#antage for yourself or 

someone else, or to cause detriment to the company, and

•the duty not to improperly use information o!tained through your position to gain

an ad#antage for yourself or someone else, or to cause detriment to the company.

Duty to not trade while insolvent

$s well as general directors8 duties, you also ha#e a positi#e duty to pre#ent your 

company trading if it is insol#ent. $ company is insol#ent if it is una!le to pay all its

de!ts when they are due. (his means that !efore you incur a new de!t, you must consider whether you ha#e reasona!le grounds to suspect that the company is insol#ent or will

 !ecome insol#ent as a result of incurring the de!t.

$n understanding of the financial position of your company only at the time you sign off 

on the yearly financial statements is insufficient. Gou need to !e constantly aware of your 

company8s financial position.

Reulatory Gui$e +,- Duty to "re.ent insol.ent tra$in* Gui$e %or $ire!tors

Duty to keep books and records

Gour company must keep adeuate financial records to correctly record and e&plain

transactions and the company8s financial position and performance. $ failure of a director 

to take all reasona!le steps to ensure a company fulfils this reuirement contra#enes the

)orporations $ct.

or the purposes of an insol#ent trading action against a director, a company will

generally !e presumed to ha#e !een insol#ent throughout a period where it can !e shown

to ha#e failed to keep adeuate financial records.

https://www.ic.gc.ca/eic/site/cilp>pdci.nsf/eng/cl**<2.html

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T(E ROLE OF DIRECTORS

(he !oard of directors of a not>for>profit corporation is responsi!le for the management

of the corporation. "n general terms, this means that the !oard is responsi!le for super#ising senior staff, pro#iding strategic planning to the corporation, and de#eloping

and implementing corporate policy. Board mem!ers must !e Cor at least must !ecome

knowledgea!le a!out the !usiness and financial affairs of the corporation. 5here the

corporation is a charity, the !oard has a heightened duty of care with respect to the

 protection of its charita!le property.

"n discharging its mandate to manage the corporation's affairs, the !oard must comply

with the o!ects of the corporation as stated in the letters patent or articles of 

incorporation and with the !ylaws of the corporation. (he !oard must also comply with

the rele#ant pro#isions of the corporations statute under which the corporation is

incorporated and the rules esta!lished under the common law Cthe law esta!lished !y

courts go#erning directors' duties.

T(E DUTIES OF DIRECTORS

Directors are reuired to e&ercise their power with competence Cor skill and diligence in

the !est interests of the corporation. (hey owe what is called a fiduciary duty to the

corporation. (he duty is a fiduciary duty !ecause the o!ligation to act in the !est

interests of the corporation, at its core, is an o!ligation of loyalty, honesty and good faith.

odern corporations statutes go#erning !usiness corporations pro#ide a concise

formulation of the fiduciary o!ligation owed !y directors. ost of the corporations

statutes go#erning not>for>profit corporations do not. (he formulation of the fiduciary

duty of directors has !een de#eloped at common law !y )anadian and Fnglish courts or 

set out in the )i#il )ode.

Directors' fiduciary duties can !e di#ided into two main !ranches:

a (he duty of care and,

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 ! (he duty of loyalty.

(he duty of care imposes on directors a duty of competence or skill > i.e., a reuirement

to act with a certain le#el of skillE and a duty of diligence. (he duty of skill and diligence

must !e performed to a certain standard of care.

5hat le#el or kind of skill must a director demonstrateL 5hat le#el or kind of diligenceL

or not>for>profit corporations, the answers to these uestions are to !e found in any one

of or any com!ination of the following sources:

•

the legislation under which the corporation is incorporatedE

• court decisions which attempt to define the standard of care e&pected of directorsE

• non>corporation laws and statutes which impose additional specific duties on

directorsE

• in trust law, for not>for>profit directors of a corporation organiMed to pursue

charita!le purposesE and,

• in NuO!ec, the directors' duties found in the )i#il)ode of NuO!ec

"t is generally accepted that a heightened duty of care is owed !y directors of a charita!le

not>for>profit corporation.

(he duty of loyalty reuires that a director act honestly and in good faith in the !est

interests of the corporation. (he duty of loyalty is a personal duty and cannot !e

delegated Cthe no>delegation rule. $mong other implications, it means that a director is

not allowed to profit from his or her office Cthe no>profit rule and must a#oid all

situations in which his or her duty to the )orporation conflicts with his or her interests

Cthe no>conflict rule.

T#e Duty o% Care

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A/ T#e $uty o% s0ill or !om"eten!e

"n carrying out their o!ligations, directors of not>for>profit corporations must use an

appropriate degree of skill. (he common law holds that what is known as a su!ecti#e

standard applies to directors of not>for>profit corporations incorporated under the )anada

)orporations $ct or under pro#incial incorporation statutes, unless those statutes set out a

different standard. "n some pro#inces, what has !een descri!ed as an o!ecti#e skill

standard has !een set out in legislation. (his standard is discussed !elow. (he su!ecti#e

standard reuires that directors:

e&ercise such degree of skill and diligence as would amount to the reasona!le care that an

ordinary person might !e e&pected to take in the circumstances on his or her own !ehalf,

 !ut he or she need not e&hi!it in the performance of his or her duties a greater degree of 

skill than may !e e&pected from a person of his or her knowledge and ootnote2

(he standard is su!ecti#e in the sense that it incorporates a reference to the particular 

a!ilities of the particular director. ince the standard is su!ecti#e, it can !e applied

differently among !oard mem!ers of a gi#en corporation. or instance, a lawyer or an

indi#idual with !usiness e&perience will !e held to a higher standard of care than

someone with less education or e&perience.

"n contrast, under an o!ecti#e standard of care all !oard mem!ers > regardless of 

 !ackground or e&perience > are assessed against the same !enchmark. (he most

commonly used o!ecti#e standard is the conduct that might !e e&pected of a reasona!ly

 prudent person. $ higher o!ecti#e standard, which has ne#er !een applied !y a court, is

the conduct that might !e e&pected of a reasona!le director.

F#en when the su!ecti#e standard of care applies, this does not mean that a director with

few skills or little e&perience will escape lia!ility. (he con#entional wisdom is that such

a director is reuired to act in accordance with conduct e&pected of a reasona!ly prudent

 person. (his means that a director without the skills reuired to meet that standard is

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o!liged to acuire them, or some of them. $ director must !ecome informed if he or she

is not already knowledgea!le.

$ lack of case law in this area means that it is impossi!le to determine with any certainty

what distinctions would !e made !y the courts !etween the su!ecti#e and o!ecti#e

standards of care. Jwing to the deference shown !y courts to !usiness decisions, and the

difficulty of tracing a decision !ack to the particular skill le#el of a director or directors,

the difference !etween the two standards may !e more percei#ed than real.

F#en so, where the su!ecti#e standard applies, this can make it more difficult to attract

highly>skilled, e&perienced or professional nominees for the !oards of not>for>profitcorporations.

4owe#er, the common law has imposed some reasona!le limitations on what can !e

e&pected of directors:

• a director is not lia!le for mere errors in !usiness udgement Ce.g., considered

decisions to pursue a particular commercial course made after honest and good

faith e#aluationE

• directors are ustified in entrusting certain matters of !usiness to officers of the

corporationE and,

• directors are ustified, in the a!sence of grounds for suspicion, in trusting that

officers of the corporation will perform their dutiesootnote

"n practical terms, the following applies:

• Directors should make decisions affecting the corporation !ased on full

consideration of all appropriate material and on the ad#ice of professionals where

reuired.

• Directors should o#ersee all aspects of the corporation's operations.

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• Directors may delegate certain functions to key senior management, !ut must

maintain a super#isory role.

(he !oard of directors is responsi!le for regularly re#iewing the performance of senior 

staff to whom they are entrusting the implementation of the corporation's mandate on a

daily !asis.

1)2 T#e $uty o% $ilien!e

ynopsis

(he duty of diligence reuires a director to attend meetings and to !ecome as fully

informed as possi!le regarding all aspects of the corporation, including any issues that

affect the corporation.

Directors ha#e a duty of diligence in their management of the affairs of the corporation

that reuires, to the greatest possi!le e&tent, regular meeting attendance and de#elopment

of a sound knowledge of all aspects of the corporation. $s noted a!o#e, under the )anada

)orporations $ct there is no duty for directors to ha#e a particular skill le#el. (hey are

only reuired to act within their particular knowledge and skill le#el.

(he duty of diligence refers to the o!ligation of directors to educate themsel#es a!out the

corporation's mandate and all aspects of its operations. "t is not enough to merely attend

 !oard of directors' meetings. (he duty of diligence reuires acti#e and concerted effort on

the part of directors to !e knowledgea!le and ready to make informed decisions affecting

the corporation.

(he duty of diligence has a num!er of practical implications. Directors should:

• ensure that the !oard of directors meets regularlyE

• attend meetings of the !oard of directors whene#er reasona!ly possi!leE

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•  !e thoroughly informed a!out any decisions the !oard has to make and ensure that

they are pro#ided in a timely manner !efore the !oard meeting with all rele#ant

documents including agreements, financial reports and information, legal opinions

and other information necessary to make knowledgea!le and informed decisions at

the !oard meetingE

• e&ercise independent udgement when #oting in all corporate decisions, and not

simply #ote with the maority for no well>informed reasonE

• ensure that minutes of meetings of the corporation accurately reflect any comments

or #otes in opposition to matters acted uponE

• carefully re#iew all reports relating to the corporation's financial affairs, including

interim and year end financial statementsE

• with the assistance of senior staff, carefully re#iew and participate in formulating

the annual !udget and strategic planE

• understand and comply with the stated purposes of the corporation as pro#ided for 

in the letters patent of the corporationE

• understand and carry out their o!ligations under the corporation's !ylaws,

including the reuirement to call an annual general meeting and to pro#ide

information to the mem!ers at that meetingE

• reuire senior management to pro#ide them with any ongoing operational and

 program informationE

• monitor and super#ise the chief staff person and regularly assess his or her 

 performanceE

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•  !e aware of all internal policies affecting the organiMation and ensure that certain

key policies are in place Csuch as an in#estment policy and conflict of interest

 policyE and,

•  !e aware of the laws affecting the corporation and o!tain necessary legal and

accounting ad#ice.

Duty o% Loyalty

ynopsis

Directors must act with honesty and in good faith in what they reasona!ly !elie#e to !e

the !est interests of the corporation.

$s noted a!o#e, the position of a director with respect to the not>for>profit corporation is

that of a fiduciary. $s a result, a director is considered to !e acting for the corporation's

 !enefit, and must su!ordinate his or her personal interests to the !est interests of the

corporation. "n NuO!ec, directors must !y law act with honesty and loyalty in the !est

interest of the legal which is the ci#il law codification of the common law fiduciary

duties.

(his duty of loyalty in#ol#es good faith, trust and special confidence, and is the same

whether the corporation is a !usiness corporation or a not>for>profit corporation. "t

reuires high standards of honesty and good faith in the e&ercise of a director's powers

and discretions. "t means that a director must always use his or her powers in the !est

interests of the corporation. (he director may not delegate his or her duty, e&cept under 

certain circumstances and with adeuate super#isionE the director must not profit from his

or her position and must always disclose the entire truth in his or her dealings with the

corporationE and, the director must a#oid all conflicts of interest.

$ director will ne#er !e a!le to discharge his or her o!ligations in meeting the duty of 

care if the director has acted in !ad faith. "ntentional dishonesty, incomplete or 

misleading representations, and acting from an improper moti#e can all !e characterised

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as !ad faith. (he 'good faith' reuirement is the core of the fiduciary relationship and

reuires a director to act with pure intentions and with a #iew to ser#ing the !est interests

of the corporation.

Directors may not a!use their powers !y e&ercising them for an improper purpose, > i.e.,

in order to gi#e themsel#es an ad#antage or to confer an ad#antage to someone else, or in

order to unduly discriminate against a person > without their act !eing ustifia!le !y the

 !est interests of the corporation.

or instance, they may not use their power !y admitting only mem!ers sympathetic to

them and refusing to admit or e&pelling mem!ers !ecause they are not.

 Iot only could such improper actions !e set aside !y a )ourt, !ut they may also result in

the personal lia!ility of the directors towards the corporation and the inured persons.

(he duty of honesty and good faith has #arious practical implications. Directors must:

• disclose the entire truth in their dealings with the corporation and acti#ely a#oid

any impropriety or dishonestyE

• ha#e full allegiance to the corporation's mission and further its causeE

• resign as a director where the director has any personal preudices or !eliefs that

are inconsistent with the corporation's mission and that might interfere with the

duties owed to the corporationE

•  place the interests of the corporation a!o#e personal self>interest in all dealings

with the corporation and acti#ely a#oid all potential conflicts of interestE

• fulfill all of the corporation's reporting o!ligations with honesty and good faith,

and accurately represent the corporation's financial or other positionE

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• maintain adeuate and accurate !ooks of account, records and minutes of the

corporationE

•ensure that all corporate decisions are implemented in accordance with the

applica!le !oard resolutionE

• accurately portray the corporation's programs and o!ecti#es to the general pu!lic

and to any reuesting go#ernment authorityE

• not disclose any information acuired in connection with their position as directors

that might !e harmful to the interests of the corporation and that is not already

a#aila!le to the pu!licE and,

• fulfill the terms and restrictions of any special purpose trust fund maintained !y the

corporation, honestly and in good faith.

 Ion>delegation

ynopsis

$ director must not delegate his or her general responsi!ility for go#erning the

corporation. "n certain circumstances it is permissi!le to delegate particular tasks related

to management of the corporation, pro#ided there is proper super#ision of the party to

which the task is delegated.

Directors are entitled to delegate some of their responsi!ilities to committees, officers, or 

mem!ers of the corporation. "n NuO!ec, directors of )ompanies $ct corporations may not

delegate powers to any committee other than an e&ecuti#e committee composed

e&clusi#ely of directors and created !y a !ylaw adopted !y 2/ of the mem!ers present at

a special meeting. "n other urisdictions delegation powers are not so prescri!ed, howe#er 

wholesale delegation > most o!#iously, where a director purports to gi#e o#er all his or 

her responsi!ilities as a director to another person > is ne#er permitted. uch an action

would usurp the role of the corporation's mem!ers in electing directors.

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(he fact that directors ha#e delegated a particular task does not relie#e them from

responsi!ility, and they should always super#ise the carrying out of the task. Directors

should remem!er that they are ultimately accounta!le for the o#erall management of the

organiMation.

Delegation of core responsi!ilities, such as gi#ing an e&ecuti#e committee authority to

 !ind the corporation, should !e contemplated in the !ylaws. "f such delegation is not

addressed in the !ylaws, or alternati#ely in an e&plicit resolution of the full !oard setting

out the terms of the delegation, actions or decisions taken !y the !ody to whom the

delegation was made may !e su!ect to challenge. 6enerally, the !roader the delegation,

the stronger the argument to !e made that it needs to !e contemplated in the !ylaws.

(he line !etween go#ernance and operational matters is often unclear. $s a general rule,

it is !est to limit delegation of core functions to !oard commit>tees authoriMed !y the

 !ylaws. Jther matters may !e delegated !y way of !oard resolution.

(he terms of reference of any delegation, whether found in the !ylaws, resolutions or 

 !oth should set out the scope and duration of the delegation, the reuirements for 

reporting !ack to the full !oard, and the relationship !etween the !oard and the !ody to

which the matter is delegated. Cee chapter = for further information on the relationship

 !etween !oards and #arious types of committees.

Duties (owards em!ersPP

Directors ha#e certain duties to the mem!ers of the corporation. (hey must ensure that

the corporation and its directors a!ide !y the terms of its letter patent and !ylaws, which

ha#e !een considered !y the courts as akin to a contract !etween the corporation and

its ootnote+2

Directors must also treat all mem!ers eually Cfor instance, !y fi&ing or collecting dues

or enacting rules or !ylaws, unless the !est interests of the corporation clearly reuire

otherwise.

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Directors must tread especially carefully in the sensiti#e and litigation>rich area of 

mem!ers' discipline.

Before suspending, fining, e&pelling or refusing to readmit a mem!er, directors must

make sure that the !ylaws of the corporation clearly empower them to do so, and that all

the internal procedural steps they set out Cnotices, delays, inuest and recommendation !y

a committee, hearing, internal appeal, etc. ha#e !een strictly adhered to.

(he proceedings must afford a reasona!le degree of procedural fairness > i.e., fair play

and good faith. (he disciplined mem!er should !e gi#en fair notice, and an opportunity

 !e to !e heard Cand ha#e counsel present in his own defence !y !oard mem!ers opento ootnote+ Jtherwise, the !oard's decision will !e su!ect to re#iew !y a )ourt. Directors

must !e careful not to impinge on the mem!er's reputation, for e&ample !y pu!licising at

large his e&pulsion and the moti#es thereof, or !y ha#ing a general meeting of mem!ers

ratify it when a !oard resolution is sufficient according to the !ylaws. (hey stand to !e

 personally sued for damages if they do.

ample Nuestions or 9rospecti#e or )urrent Directors (o $sk the JrganiMation

+. Does the !oard of directors meet regularlyL 4ow often does it meetL

2. 5hat notice and preparation Ce.g., agendas, reports, etc. does the corporation gi#e

to directors in ad#ance of !oard meetingsL

. Does the corporation ha#e written policies such as a conflict of interest policy and

an in#estment policyL

0. Does the corporation maintain the proper !ooks of account, records and minutes of 

meetingsL

=. Does the corporation pro#ide !oard mem!ers with ongoing operational and

 program informationL

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. 4ow does the !oard monitor and super#ise the chief staff personL Does it do an

annual performance appraisal of this personL

ample Nuestions or Directors (o $sk (hemsel#es

+. Do " understand the duties of a director of a not>for>profit corporationL

2. Do " attend !oard meetings regularlyL Do " prepare adeuately for themL Do " read

materials and consider them carefullyL

. Do " e&ercise independent udgement when #oting on corporate mattersL

0. "f " am ser#ing on the !oard of a charita!le corporation, do " understand the

specific fiduciary responsi!ilities that " ha#eL

=. $m " alert to any potential conflicts of interest or appearance of personal gainL

. "f " sit on the !oard owing to my affiliation with a stakeholder group, do "

understand that my affiliation with that group cannot determine my #ote on any

 !oard decisionL $m " prepared to declare a conflict of interest, and in some cases

resign, if " am una!le to reconcile my role with the stakeholder group and my

 position as a directorL

7. 4a#e " read and do " understand the corporation's policies on matters such as

in#estment and conflict of interestL