A director must do everything in his or her power to govern the company, which is no small feat. In an economic climate which is far from rosy, directors are subject to an increasing number of duties, which can be divided into four broad categories.
Duty of loyalty
A director must above all be loyal. (S)he must act in the interest of the company and put the company's interest above his or her own. Loyalty is, however, a broad concept with multiple applications in practice.
First, pursuant to the theory of corporate opportunities, it is forbidden for a director to take advantage of or pursue an opportunity that belongs to the company, without the latter's consent. Imagine that the company for which you serve as a director wishes to relocate its business to a new building and you incidentally learn - while negotiating an important contract on the company's behalf with a supplier - that the supplier is selling a building. After looking into the matter, you understand that the building is being sold at a good price. Even though the building could be a suitable place for the company's business, you tell yourself that you will buy the building in your personal capacity. But can you? In fact, your duty of loyalty forbids you from doing so, at least without informing the company of the opportunity, which can in turn decide whether it wishes to pursue it.
A director also has a duty to avoid conflicts of interest and, in the event of a conflict, the company and the director must abide by the rules set out in the Company Code, which provide for a particular procedure intended to protect the interests of the company and its stakeholders. Moreover, a director may not, in principle, perform activities that compete with those of the company. That would be disloyal.
The duty of loyalty also requires directors to report on the manner in which they perform their office. In fact, they do so annually when they prepare the management report which is presented to the general meeting of shareholders.
Duty of care
A director must perform his or her duties diligently, with due care and attention. The list of duties covered by this obligation is particularly long. A few notable ones are the duty to act diligently (directors must indeed be diligent in the performance of their tasks and participate in board meetings), the duty to demonstrate commitment (directors must play an active role on the management organ, participate in deliberations and ask questions, including tough ones), the duty to be informed (directors must be correctly informed before taking a decision and must participate in the formulation of responses to questions raised by shareholders) and the duty to investigate (the solvency of co-contracting parties, for example). It is up to each director to assess the care with which (s)he is expected to perform his or her duties.
Duty of confidentiality
A director is bound by a strict duty to exercise discretion, which prohibits him or her from revealing to third parties information of which (s)he became aware in the performance of his or her office. This prohibition is sometimes difficult to respect when a director has conflicting functions, for example when (s)he is a director of both the parent company and one of its subsidiaries, where (s)he represents the majority shareholder. In such instances, the director may provide certain information to the parent company but only that which is necessary for the latter to form an opinion on the positions to be adopted. In practice, it is far from easy to determine what constitutes "necessary" information.
Duty to have and maintain skills
Finally, every director must possess the knowledge, experience and skills necessary to properly perform his or her office. If the director is a member of a board, it is necessary to take into account the level of diversity within this organ in order to assess the complementarity of skills required of its members. Moreover, in certain entities, such as listed companies, members of committees must possess specific skills. For example, at least one member of the audit committee must be skilled in accounting or auditing, while a majority of members of the remuneration committee must possess the necessary expertise in terms of remuneration policy.
So, company directors, you've been warned! You have a fair number of duties to fulfil, bearing in mind that the above list is not exhaustive. Don't be too alarmed, though. Failure to meet a given duty does not automatically mean you will be held liable. The non-fulfilment of an official duty must also constitute misconduct or wrongdoing, be attributable to you, and harm the company, all of which must be proven. Moreover, any such assessment shall always take into account the specific circumstances of the case.
For more information on directors' duties, please join us for a seminar on the subject, to be given in French on 13 March and in Dutch on 18 March. Click here for the invitation and to register.
