“Directors in the United
Kingdom Companies :2008”
By
Sally Ramage, Editor, The
Criminal Lawyer.
A poll, carried out by YouGov, questioned 918 directors and senior
managers, and found that 55% of company directors stated that a company
director 'is no longer a great job', while 58% said that the risks and
responsibilities of the role are outweigh the rewards. One-fifth of
company directors said that they have seriously considered resigning.
Almost 50% said that their
companies could not afford to keep up with the costs of compliance.
.
The survey revealed high
levels of lack of knowledge about legal risks, new Companies Act
responsibilities and liabilities.
Since October 2007
individual shareholders may sue company directors for breach of duty, which
previously was only available in cases of fraud. Also, since October 2007, the
duties of company directors have been widened beyond their obligation to
promote the success of the company to also take account of the interests of its
employees, the environment and the community.
The new general duties of directors include a duty to act in accordance with the company’s
constitution, and to use powers only for the purposes for which they were
conferred; a duty to promote the success of the company for the benefit of its
members; a duty to exercise independent judgment; a duty to exercise reasonable
care, skill and diligence; and a duty to avoid conflicts of
interest (except where they arise out of a proposed transaction or arrangement
with the company). As to conflicts of interest, at present, if a director
allows his personal interests, or his duties to another person, to conflict
with his duty to the company then, unless shareholders consent to the conflict,
the company can avoid any relevant contract and the director must account to
the company for any ‘secret profit’ he has made out of the arrangement. The new
duty replaces the old rule.
A duty not to accept benefits from third parties is
another new general duty. There is no express duty to this effect at common
law. A duty to declare to the company’s other directors
any interest a director has in a proposed transaction or arrangement with the
company, is another new general duty. At present, a conflict of interest
arising out of a transaction or arrangement with the company is dealt with by
the general rule on conflicts of interest. In future, such a conflict
will be covered by this new duty of disclosure.
As reporting requirements increase for some companies,
the Act gives directors a “safe harbour”
that will restrict their civil liability in respect of material omissions from,
or statements made in, directors’ reports - liability will
only arise if statements are untrue or misleading and made deliberately or
recklessly. In these circumstances, a director would only be liable to
the company and not to shareholders.
The Act preserves the common law rule that, in
circumstances of actual or threatened insolvency, the focus of the directors'
duties shifts from promoting the interests of the company for the benefit of
its members to acting in the best interest of its creditors.
What is clear is that all directors ought to retain
complete and accurate records of events, including the boards' decision-making
processes and receipt of professional advice.
Only time will tell whether directors will be able to
cope with these new responsibilities.
How does this compare with the regime under the Companies
Act 1985? The Companies Act 1985 (CA 1985) imposed requirements
thus- registers be kept of members and records; that accounts be
kept; and statutory returns made. However, these requirements did not go as far
as a check on the behaviour of the dishonest or incompetent. The articles of
association may have gone further in requiring directors to meet certain
standards but there was no obligation that they should do so.
Now, if their company fails due to insolvency,
directors may still be held liable to compensate creditors for avoidable
losses under the law of wrongful trading, contained in the Insolvency Act
1986.
As an aside, it is of note that most of the
directors who took part in the YouGov
survey were male in gender, reflecting the proportion of men to women
running British companies, unlike directors in Norway, where
legislation came into force from 1st January 2008, making it compulsory
that all Norwegian public companies must have at least 40% of
female board directors.
It is a pity that the UK legislators did not use the
opportunity of a new Companies Act 2006 to positively discriminate like
the Norwegians did, especially since recent studies reveal that the gender
earnings gap has widened, despite a sizable decline in occupational segregation
by gender.
References
Ebru Kongar, “Is
deindustrialization good for women?”, Feminist Economics (14) 1, January 2008,
73-92
The Economist, “Girl Power”, January 2008, p57
click below to