Discussion Multiple directorships refer to the situations that an individual simultaneously holding multiple positions as company directors. In view of this, some critics think that the more complex the legal duties owed by a director to different corporations, the higher the risk of collision between the director’s duties and his business interests. As discussed herein, these directors should carefully consider the scope of fiduciary duties and the duties of care and skills that they owe to each corporation prior to making any business decisions.
This paper is trying to investigate the problems that could possibly arise from little directorships and to examine the legal implications that given rise from those problems. TO begin with, one noTABLE problem at stack is under what circumstances do multiple directorships constitute a breach of fiduciary duty or present a conflict of interest. From a legal perspective, an individual acting in a multiple capacity as directors of more than one corporation owes a fiduciary duty to each corporation.
Such fiduciary duties comprise that a director must act bona fide for the benefit of the company and exercise his power for proper purpose. Also, a director must not allow any conflict between his personal interest and his duty as director. In general, there is no interdiction against a director serving on the boards of two or even more corporations. The matter of multiple directorships in turns becomes improper when a director fails in his fiduciary duties to a corporation. One conflicting situation associated with multiple directorships is the usurpation of corporate opportunity.
Take the case of Gut v. Loft, Inc. (1939) as for instance. Without making a full disclosure to the board that a corporate opportunity exists, instead a director pursued the business advantage on elf of another corporation. In such a case, the director would be alleged to have breached his fiduciary duty by failing to offer that opportunity to the company and protect the interest of every corporation he serves. Another conflicting problem that multiple directorships may bring about is that both corporations he serves are found engaging in a direct competition.
In general, the decision laid down in the case of London and Mishandled Exploration Co Ltd v New Mishandled Exploration Co Ltd. (1 891 ) suggests that a director does not breach his duties when he competes with his many, whether by directly engaging in a competing business or by holding a directorship in a company. However, the director will be liTABLE if the rival business is detrimental to the corporation. Such director is regarded as not acting in good faith and refrain from injuring the corporations.
The best way to avoid this is to fully disclose his relationships with the corporations, the nature of the businesses, and any specific projects in which respective corporations may be interested. Doubts about the confidentiality of inside information are another critiques. Where a director participates in a board meeting, he is expected to keep all information confidential to protect the company’s interest. However, it is reasonTABLE that a person holding multiple directorships attends different board meetings and acquires confidential information such as the business strategies of respective companies.
In a case that the two companies contemplate entering into contract or other business transaction, such director is regarded as standing on both sides of the bargaining TABLE. Having the inside information regarding both companies’ respective interests in the orientations, the director may violate his fiduciary duties if he takes part in a decision making process about the matter in conflict or discloses the material information to either company. In a similar sense, being a director of many listed companies, there is a high likelihood that the person would need to review the financial statements of respective companies.
By disclosing the financial information to a third party, that director may be personally benefit to the detriment of the corporation. This raises an issue of whether such director is acting bona fide for the benefit of the company. However, such leakage of confidential information indicates that such director has no intention to perform his duty to avoid conflict of interest as he allows his personal interest outweighing the benefit of the company.
Another noTABLE issue is that whether such multiple directorships would constitute a breach in the duty of care. This duty requires a director to perform his function diligently. For example, a director is expected to regularly attend board meetings, place important matters on the agenda, and obtain sufficient information to keep informed. As the workload of director Irving on multiple boards increases significantly, the risk of managerial oversight also increases.
Hence, it is reasonTABLE to doubt about whether an individual while holding many directorships, also being TABLE to devote sufficient time to understand the affairs of each company, to meaningfully prepare and contribute to board meetings, and to review the financial statements of several companies at the same time, especially in the majority of cases, many companies have a practice of releasing their annual or interim results in a similar schedule. Furthermore, in addition to legislative roles, avian so many directorships might induce a perception to the public that the function of ELECT primarily serves business interests.
The legislature typically plays a dominant role in establishing public policy. Nevertheless, it is heavily influenced by its members when they interpret legislation and make proposals influencing the legislative agenda. Thus, these multiple directors may face the dilemma of choosing actions that advance their conception of good society and actions within their own corporate interests. Major criticisms concern about large number of director posts in the council might ender the ability of lawmakers to deal with the livelihood issues.
In sum, despite of having rich experience and reputation benefits from multiple directorships, it is often difficult to prevent conflicts of interests as being on more boards. A multiple director must therefore be vigilant in identifying any potential conflicting situations. When such situations arise, he must well perform his director’s duties instead of using his positions to further his own interests.
