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Encyclopedia > Board of directors

In relation to a company, a director is an officer (that is, someone who works for the company) charged with the conduct and management of its affairs. A director may be an inside director (a director who is also an officer or promoter or both) or an outside, or independent, director. The directors collectively are referred to as a board of directors. Sometimes the board will appoint one of its members to be the chair of the board of directors. Chairman of the Board was a 1998 movie starring Courtney Thorne-Smith and Carrot Top. ... Chairmen of the Board was a Detroit, Michigan based soul music group active in the 1970s. ... The term company may refer to a separate legal entity, as in English law, or may simply refer to a business, as is the common use in the United States. ...


Theoretically, the control of a company is divided between two bodies: the board of directors, and the shareholders in general meeting. In practice, the amount of power exercised by the board varies with the type of company. In small private companies, the directors and the shareholders will normally be the same people, and thus there is no real division of power. In large public companies, the board tends to exercise more of a supervisory role, and individual responsibility and management tends to be delegated downward to individual professional executive directors (such as a finance director or a marketing director) who deal with particular areas of the company's affairs. A shareholder or stockholder is an individual or company (including a corporation), that legally owns one or more shares of stock in a joint stock company. ... A General meeting is a meeting of an organisation which the generality of its members are entitled or encouraged to attend. ... This article does not cite any references or sources. ...


Another feature of boards of directors in large public companies is that the board tends to have more de facto power. Between the practice of institutional shareholders (such as pension funds and banks) granting proxies to the board to vote their shares at general meetings and the large numbers of shareholders involved, the board can comprise a voting bloc that is difficult to overcome. However, there have been moves recently to try and increase shareholder activism amongst both institutional investors and individuals with small shareholdings. [1] [2] De facto is a Latin expression that means in fact or in practice. It is commonly used as opposed to de jure (meaning by law) when referring to matters of law or governance or technique (such as standards), that are found in the common experience as created or developed without...

Contents

Classification

Main articles: executive director and non-executive director

Directors are traditionally divided into executive directors and non-executive directors. Broadly, executive directors tend to be persons who are dedicated full-time to their role in relation to the management of the company. Non-executive directors tend to be "outsiders" brought in for their expertise, and to lend a more impartial view in relation to strategic decisions. Many corporate reforms in the late 1990s and early 2000s were focused on increasing the number and role of non-executive directorships in public companies in the belief that an impartial view was more likely to restrain corporate excess and egos and reduce the likelihood of another major corporate scandal. This view is not new; similar recommendations were made by the Cadbury Committee in the United Kingdom in 1992.[1] Executive director is a title given to a person who is the head of an executive branch of an organization or company. ... A non-executive director is a member of the board of directors of a company who does not form part of the executive management team. ... This article does not cite any references or sources. ... A corporate scandal is a scandal involving allegations of unethical behavior by people acting within or on behalf of a corporation. ...


In practice, executive directors tend to dominate board meetings simply by virtue of their much greater familiarity with the company and its internal workings.


Some countries also classify persons who are not actually directors as either de facto directors, or "shadow" directors. A de facto director is a person who is not actually appointed as a director, but acts as if they were (often because they wrongly believe that they have been properly appointed as a director). A "shadow" director is also not a director at all, but seeks to control the direction and management of the company without putting themselves forward as being able to do so.[2]


History

The development of a separate board of directors to manage the company has occurred incrementally and indefinitely over legal history. Until the end of the nineteenth century, it seems to have been generally assumed that the general meeting was the supreme organ of the company, and the board of directors was merely an agent of the company subject to the control of the shareholders in general meeting.[3]


By 1906 however, the English Court of Appeal had made it clear in the decision of Automatic Self-Cleansing Filter Syndicate Co v Cunningham [1906] 2 Ch 34 that the division of powers between the board and the shareholders in general meeting depended upon the construction of the articles of association and that, where the powers of management were vested in the board, the general meeting could not interfere with their lawful exercise. The articles were held to constitute a contract by which the members had agreed that "the directors and the directors alone shall manage."[4] Her Majestys Court of Appeal is the second most senior court in the English legal system, with only the Judicial Committee of the House of Lords above it. ... Articles of Association are a requirement for the establishment of a company under United Kingdom and in most other countries company law. ...


The new approach did not secure immediate approval, but it was endorsed by the House of Lords in Quin & Artens v Salmon [1909] AC 442 and has since received general acceptance. Under English law, successive versions of Table A have reinforced the norm that, unless the directors are acting contrary to the law or the provisions of the Articles, the powers of conducting the management and affairs of the company are vested in them. The House of Lords, in addition to having a legislative function, has a judicial function as a court of last resort within the United Kingdom. ... In English company law, Table A refers to the default form of Memorandum of Association and Articles of Association for companies limited by shares incorporated in England and Wales where the incorporators do not choose to use modified forms. ...


The modern doctrine was expressed in Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113 by Greer LJ as follows:

"A company is an entity distinct alike from its shareholders and its directors. Some of its powers may, according to its articles, be exercised by directors, certain other powers may be reserved for the shareholders in general meeting. If powers of management are vested in the directors, they and they alone can exercise these powers. The only way in which the general body of shareholders can control the exercise of powers by the articles in the directors is by altering the articles, or, if opportunity arises under the articles, by refusing to re-elect the directors of whose actions they disapprove. They cannot themselves usurp the powers which by the articles are vested in the directors any more than the directors can usurp the powers vested by the articles in the general body of shareholders."

It has been remarked that this development in the law was somewhat surprising at the time, as the relevant provisions in Table A (as it was then) seemed to contradict this approach rather than to endorse it.[5]


Election and removal

In most legal systems, the appointment and removal of directors is voted upon by the shareholders in general meeting.[6]


Directors may also leave office by resignation or death. In some legal systems, directors may also be removed by a resolution of the remaining directors (in some countries they may only do so "with cause"; in others the power is unrestricted).


Some jurisdictions also permit the board of directors to appoint directors, either to fill a vacancy which arises on resignation or death, or as an addition to the existing directors.


In practice, it can be quite difficult to remove a director by a resolution in general meeting. In many legal systems the director has a right to receive special notice of any resolution to remove him;[7] the company must often supply a copy of the proposal to the director, who is usually entitled to be heard by the meeting.[8] The director may require the company to circulate any representations that he wishes to make.[9] Furthermore, the director's contract of service will usually entitle him to compensation if he is removed, and may often include a generous "golden parachute" which also acts as a deterrent to removal. A golden parachute is a clause (or several) in an executives employment contract specifying that they will receive certain large benefits if their employment is terminated. ...


Exercise of powers

The exercise by the board of directors of its powers usually occurs in meetings. Most legal systems provide that sufficient notice has to be given to all directors of these meetings, and that a quorum must be present before any business may be conducted. Usually a meeting which is held without notice having been given is still valid so long as all of the directors attend, but it has been held that a failure to give notice may negate resolutions passed at a meeting, as the persuasive oratory of a minority of directors might have persuaded the majority to change their minds and vote otherwise.[10]


In most common law countries, the powers of the board are vested in the board as a whole, and not in the individual directors.[11] However, in instances an individual director may still bind the company by his acts by virtue of his ostensible authority (see also: the rule in Turquand's Case). This article concerns the common-law legal system, as contrasted with the civil law legal system; for other meanings of the term, within the field of law, see common law (disambiguation). ... In law, ostensible authority refers to the apparent authority of an agent (usually a company director) of a company as it appears to others,[1] and it can operate both to enlarge actual authority and to create authority where no actual authority exists. ... It has been suggested that Turquand Rule be merged into this article or section. ...


Duties

See also: Fiduciary duties

Because directors exercise control and management over the company, but companies are run (in theory at least) for the benefit of the shareholders, the law imposes strict duties on directors in relation to the exercise of their duties. The duties imposed upon directors are fiduciary duties, similar in nature to those that the law imposes on those in similar positions of trust: agents and trustees. The court of chancery, which governed fiduciary relations prior to the Judicature Acts The fiduciary duty is a legal relationship between two or more parties, most commonly a fiduciary or trustee and a principal or beneficiary, that in English common law is arguably the most important concept within the portion... A shareholder or stockholder is an individual or company (including a corporation), that legally owns one or more shares of stock in a joint stock company. ... The court of chancery, which governed fiduciary relations prior to the Judicature Acts The fiduciary duty is a legal relationship between two or more parties, most commonly a fiduciary or trustee and a principal or beneficiary, that in English common law is arguably the most important concept within the portion... Agency is an area of commercial law dealing with a contractual or quasi-contractual tripartite set of relationships when an Agent is authorized to act on behalf of another <No it is not. ... The word trustee is a legal term that refers to a holder of property on behalf of a beneficiary. ...


In relation to director's duties generally, two points should be noted:

  1. the duties of the directors are several (as opposed to the exercise by the directors of their powers, which must be done jointly); and
  2. the duties are owed to the company itself, and not to any other entity.[12] This doesn't mean that directors can never stand in a fiduciary relationship to the individual shareholders; they may well have such a duty in certain circumstances.[13]

Acting in bona fide

Directors must act honestly and in bona fide. The test is a subjective 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..."[14] However, the directors may still be held to have failed in this duty where they fail to direct their minds to the question of whether in fact a transaction was in the best interests of the company.[15] Good faith, or in Latin bona fides, is the mental and moral state of honesty, conviction as to the truth or falsehood of a proposition or body of opinion, or as to the rectitude or depravity of a line of conduct, even if the conviction is objectively unfounded. ...


Difficult questions can arise when treating the company too much in the abstract. For example, it may be for the benefit of a corporate group as a whole for a company to guarantee the debts of a "sister" company,[16] even though there is no ostensible "benefit" to the company giving the guarantee. Similarly, conceptually at least, there is no benefit to a company in returning profits to shareholders by way of dividend. However, the more pragmatic approach illustrated in the Australian case of Mills v Mills (1938) 60 CLR 150 normally prevails:

"[directors are] not required by the law to live in an unreal region of detached altruism and to act in the vague mood of ideal abstraction from obvious facts which must be present to the mind of any honest and intelligent man when he exercises his powers as a director."

"Proper purpose"

Directors must exercise their powers for a proper purpose. While in many instances an improper purpose is readily evident, such as a director looking to feather his or her own nest or divert an investment opportunity to a relative, such breaches usually involve a breach of the director's duty to act in good faith. Greater difficulties arise where the director, while acting in good faith, is serving a purpose that is not regarded by the law as proper.


The seminal authority in relation to what amounts to a proper purpose is the Privy Council decision of Howard Smith Ltd v Ampol Ltd [1974] AC 832. The case concerned the power of the directors to issue new shares. It was alleged that the directors had issued a large number of new shares purely to deprive a particular shareholder of his voting majority. An argument that the power to issue shares could only be properly exercised to raise new capital was rejected as too narrow, and it was held that it would be a proper exercise of the director's powers to issue shares to a larger company to ensure the financial stability of the company, or as part of an agreement to exploit mineral rights owned by the company.[17] If so, the mere fact that an incidental result (even if it was a desired consequence) was that a shareholder lost his majority, or a takeover bid was defeated, this would not itself make the share issue improper. But if the sole purpose was to destroy a voting majority, or block a takeover bid, that would be an improper purpose. The Judicial Committee of the Privy Council is one of the highest courts in the United Kingdom. ... For other uses, see Stock (disambiguation). ...


Not all jurisdictions recognised the "proper purpose" duty as separate from the "good faith" duty however.[18]


"Unfettered discretion"

Directors cannot, without the consent of the company, fetter their discretion in relation to the exercise of their powers, and cannot bind themselves to vote in a particular way at future board meetings.[19] This is so even if there is no improper motive or purpose, and no personal advantage to the director. Discretion, tacuinum sanitatis casanatensis (XIV secolo) Discretion is a noun in the English language. ...


This does not mean, however, that the board cannot agree to the company entering into a contract which binds the company to a certain course, even if certain actions in that course will require further board approval. The company remains bound, but the directors retain the discretion to vote against taking the future actions (although that may involve a breach by the company of the contract that the board previously approved). A contract is a legally binding exchange of promises or agreement between parties that the law will enforce. ...


"Conflict of duty and interest"

As fiduciaries, the directors may not put themselves in a position where their interests and duties conflict with the duties that they owe to the company. The law takes the view that good faith must not only be done, but must be manifestly seen to be done, and zealously patrols the conduct of directors in this regard; and will not allow directors to escape liability by asserting that his decision was in fact well founded. Traditionally, the law has divided conflicts of duty and interest into three sub-categories.


Transactions with the company

By definition, where a director enters into a transaction with a company, there is a conflict between the director's interest (to do well for himself out of the transaction) and his duty to the company (to ensure that the company gets as much as it can out of the transaction). This rule is so strictly enforced that, even where the conflict of interest or conflict of duty is purely hypothetical, the directors can be forced to disgorge all personal gains arising from it. In Aberdeen Ry v Blaikie (1854) 1 Macq HL 461 Lord Cranworth stated in his judgment that: A conflict of interest is a situation in which someone in a position of trust, such as a lawyer, a politician, or an executive or director of a corporation, has competing professional or personal interests. ... Robert Monsey Rolfe, 1st Baron Cranworth (18 December 1790- 26 July 1868), Lord Chancellor of Great Britain, elder son of the Rev. ...

"A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting or which possibly may conflict, with the interests of those whom he is bound to protect... So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or unfairness of the contract entered into..." (emphasis added)

However, in many jurisdictions the members of the company are permitted to ratify transactions which would otherwise fall foul of this principle. It is also largely accepted in most jurisdictions that this principle should be capable of being abrogated in the company's constitution.


In many countries there is also a statutory duty to declare interests in relation to any transactions, and the director can be fined for failing to make disclosure.[20]


Use 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. This prohibition is much less flexible that the prohibition against the transactions with the company, and attempts to circumvent it using provisions in the articles have met with limited success.


In Regal (Hastings) Ltd v Gulliver [1942] All ER 378 the House of Lords, in upholding what was regarded as a wholly unmeritorious claim by the shareholders,[21] held that: Regal (Hastings) v Gulliver and Ors, [1967] 2 A.C. 134 is a leading English decision on the companies law rule against directors and officers from taking corporate opportunities in violation of their duty of loyalty. ...

"(i) that what the directors did was so related to the affairs of the company that it can properly be said to have been done in the course of their management and in the utilisation of their opportunities and special knowledge as directors; and (ii) that what they did resulted in profit to themselves."

And accordingly, the directors were required to disgorge the profits that they made, and the shareholders received their windfall.


The decision has been followed in several subsequent cases,[22] and is now regarded as settled law.


Competing with the company

Directors cannot, clearly, compete directly with the company without a conflict of interests arising. Similarly, they should not act as directors of competing companies, as their duties to each company would then conflict with each other.[23]


In practice, it is not wholly unusual to see directors serve for two or more companies in competing fields, but it is tacitly assumed that they may only do so if the companies consent.


Common law duties of care and skill

Traditionally, the level of care and skill which has to be demonstrated by a director has been framed largely with reference to the non-executive director. In Re City Equitable Fire Insurance Co [1925] Ch 407, it was expressed in purely subjective terms, where the court held that:

"a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience." (emphasis added)

However, this decision was based firmly in the older notions (see above) that prevailed at the time as to the mode of corporate decision making, and effective control residing in the shareholders; if they elected and put up with an incompetent decision maker, they should not have recourse to complain.


However, a more modern approach has since developed, and in Dorchester Finance Co v Stebbing [1989] BCLC 498 the court held that the rule in Equitable Fire related only to skill, and not to diligence. With respect to diligence, what was required was:

"such care as an ordinary man might be expected to take on his own behalf."

This was a dual subjective and objective test, and one deliberately pitched at a higher level.


More recently, it has been suggested that both the tests of skill and diligence should be assessed objectively and subjectively; in the United Kingdom the statutory provisions relating to directors' duties in the new Companies Act 2006 have been codified on this basis.[24] More recently, it has been suggested that both the tests of skill and diligence should be assessed objectively and subjectively and in the United Kingdom the statutory provisions in the new Companies Act 2006 reflect this.[25] The Companies Act 2006 (c. ... The Companies Act 2006 (c. ...


Remedies for breach of duty

In most jurisdictions, the law provides for a variety of remedies in the event of a breach by the directors of their duties:

  1. injunction or declaration
  2. damages or compensation
  3. restoration of the company's property
  4. rescission of the relevant contract
  5. account of profits
  6. summary dismissal

Look up Injunction in Wiktionary, the free dictionary. ... In law, a declaration ordinarily refers a judgment of the court or an award of an arbitration tribunal is a binding adjudication of the rights or other legal relations of the parties which does not provide for or order enforcement. ... In law, damages refers to the money paid or awarded to a claimant (as it is known in the UK) or plaintiff (in the US) following their successful claim in a civil action. ... In contract law, rescission (to rescind or set aside a contract) refers to the cancellation of the contract between the parties. ... A contract is a legally binding exchange of promises or agreement between parties that the law will enforce. ... Fired and Firing redirect here. ...

The future

Historically, directors' duties have been owed almost exclusively to the company and its members, and the board was expected to exercise its powers for the financial benefit of the company. However, more recently there have been attempts to "soften" the position, and provide for more scope for directors to act as good corporate citizens. For example, in the United Kingdom, the Companies Act 2006, not yet in force, will require a director of a UK company "to promote the success of the company for the benefit of its members as a whole", but sets out six factors to which a director must have regards in fulfilling the duty to promote success. These are: Corporate benefit (sometimes referred to as commercial benefit) is the requirement under some legal systems that the directors of a company must exercise the powers[1] of the company for the commercial benefit of the company and its members. ... The Companies Act 2006 (c. ...

  • 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, and
  • the need to act fairly as between members of a company

This represents a considerable departure from the traditional notion that directors' duties are owed only to the company. Previously in the United Kingdom, under the Companies Act 1985, protections for non-member stakeholders were considerably more limited (see e.g. s.309 which permitted directors to take into account the interests of employees but which could only be enforced by the shareholders and not by the employees themselves. The changes have therefore been the subject of some criticism. [3] The Companies Act 1985 is an act of the United Kingdom Parliament enacted in 1985 which sets out the responsibilities of companies, their directors and secretaries. ...


Failures

While the primary responsibility of boards is to ensure that the corporation's management is performing its job correctly, actually achieving this in practice can be difficult. In a number of "corporate scandals" of the 1990s, one notable feature revealed in subsequent investigations is that boards were not aware of the activities of the managers that they hired, and the true financial state of the corporation. A number of factors may be involved in this tendency:

  • Most boards largely rely on management to report information to them, thus allowing management to place the desired 'spin' on information, or even conceal or lie about the true state of a company.
  • Boards of directors are part-time bodies, whose members meet only occasionally and may not know each other particularly well. This unfamiliarity can make it difficult for board members to question management.
  • CEOs tend to be rather forceful personalities. In some cases, CEOs are accused of exercising too much influence over the company's board.
  • Directors may not have the time or the skills required to understand the details of corporate business, allowing management to obscure problems.
  • The same directors who appointed the present CEO oversee his or her performance. This makes it difficult for some directors to dispassionately evaluate the CEO's performance.
  • Directors often feel that a judgement of a manager, particularly one who has performed well in the past, should be respected. This can be quite legitimate, but poses problems if the manager's judgement is indeed flawed.
  • All of the above may contribute to a culture of "not rocking the boat" at board meetings.

Because of this, the role of boards in corporate governance, and how to improve their oversight capability, has been examined carefully in recent years, and new legislation in a number of jurisdictions, and an increased focus on the topic by boards themselves, has seen changes implemented to try and improve their performance. Chief Executive Officer (CEO) is the job of having the ultimate executive responsibility or authority within an organization or corporation. ... Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way in which a corporation is directed, administered or controlled. ...


Sarbanes-Oxley Act

In the United States, the Sarbanes-Oxley Act (SOX) has introduced new standards of accountability on the board of directors for U.S. companies or companies listed on U.S. stock exchanges. Under the Act members of the board risk large fines and prison sentences in the case of accounting crimes. Internal controls are now the direct responsibility of directors. This means that the vast majority of public companies now have hired internal auditors to ensure that the company adheres to the highest standards of internal controls. Additionally, these internal auditors are required by law to report directly to the audit board. This group consists of board of directors members where more than half of the members are outside the company and one of those members outside the company is an accounting expert. Before the signing ceremony of the Sarbanes-Oxley Act, President George Bush meets with Senator Paul Sarbanes, Secretary of Labor Elaine Chao and other dignitaries in the Blue Room at the White House on July 30, 2002. ...


See also

In the late 1700s, many houses consisted of a large room with only one chair. Commonly, a long wide board folded down from the wall, and was used for dining. The "head of the household" always sat in the chair while everyone else ate sitting on the floor. Occasionally a guest, who was usually a man, would be invited to sit in this chair during a meal. To sit in the chair meant you were important and in charge. They called the one sitting in the chair the "chair man." Today in business, we use the expression or title "Chairman" or "Chairman of the Board." [citation needed] An agency cost is the cost incurred by an organization that are associated with problems such as divergent management-shareholder objectives and information asymmetry. ... An alternate director is a person who is appointed to attend a board meeting on behalf of the director of a company where the principle director would be otherwise unable to attend. ... A chair or seat is also a seat of office, authority, or dignity, such as the chairperson of a committee, or a professorship at a college or university, or the individual that presides over business proceedings. ... The term company may refer to a separate legal entity, as in English law, or may simply refer to a business, as is the common use in the United States. ... For other uses, see Corporation (disambiguation). ... Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way in which a corporation is directed, administered or controlled. ... Publicly and privately held for-profit corporations often confer corporate titles or business titles on company officials as a means of identifying their function in the organization. ... Executive director is a title given to a person who is the head of an executive branch of an organization or company. ... The Chief Financial Officer (CFO) of a company is the person primarily responsible for financial planning and record_keeping. ... Managing director is the term used for the chief executive of many limited companies in the United Kingdom, Commonwealth and some other English speaking countries. ... A non-executive director is a member of the board of directors of a company who does not form part of the executive management team. ... Vorstand refers to the executive team or management council of a German corporation. ...


External links

  • Institute of directors website
  • Guidance on director's duties (Lemon & Co)
  • CEO Evaluation Form (Boardroom Metrics)

Footnotes

  1. ^ Formally entitled the Report of the Committee on the Financial Aspects of Corporate Governance (1992). The Code of Best Practice which accompanied the Report recommended (at paragraph 1.3) that "The board should include non-executive directors of sufficient calibre and number for their views to carry significant weight in the board's decisions."
  2. ^ Under English law, a "shadow" director is defined as a person "in accordance with whose directions or instructions the directors of the company are accustomed to act" otherwise than only because "the directors act on advice given ... in a professional capacity." See section 741(2) of the Companies Act 1985 and section 251 of the Insolvency Act 1986
  3. ^ Gower, Principles of Company Law (6th ed.), citing Isle of Wight Railway v Tahourdin (1883) 25 Ch D 320.
  4. ^ Per Cozens-Hardy LJ at 44
  5. ^ See Gower, Principles of Company Law (6th ed.) at 185.
  6. ^ For example, in the United Kingdom, see section 303 of the Companies Act 1985
  7. ^ In the United Kingdom it is 28 days' notice, see sections 303(2) and 379 of the Companies Act 1985
  8. ^ In the United Kingdom, see section 304(1) of the Companies Act 1985. A private company cannot use a written resolution under section 381A - a meeting must be held.
  9. ^ In the United Kingdom, see sections 303(2) and (3) of the Companies Act 1985
  10. ^ See for example Barber's Case (1877) 5 Ch D 963 and Re Portuguese Consolidated Copper Mines (1889) 42 Ch D 160
  11. ^ Breckland Group Holdings Ltd v London and Suffolk Properties [1989] BCLC 100
  12. ^ Percival v Wright [1902] Ch 421
  13. ^ For example, if the board is authorised by the shareholders to negotiate with a takeover bidder. It has been held in New Zealand that "depending upon all the surround circumstances and the nature of the responsibility which in a real and practical sense the director has assumed towards the shareholder," Coleman v Myers [1977] 2 NZLR 225
  14. ^ Re Smith & Fawcett Ltd [1942] Ch 304
  15. ^ Re W & M Roith Ltd [1967] 1 WLR 432
  16. ^ That is a company which has the same 100% shareholder
  17. ^ Teck Corporation v Millar (1972) 33 DLR (3d) 288
  18. ^ This division was rejected in British Columbia in Teck Corporation v Millar (1972) 33 DLR (3d) 288
  19. ^ Although as Gower points out, as well understood as the rule is, there is a paucity of authority on the point. But see Clark v Workman [1920] 1 Ir R 107 and Dawson International plc v Coats Paton plc 1989 SLT 655
  20. ^ In the United Kingdom, see section 317 of the Companies Act 1985
  21. ^ In summary, the facts were as follows: Company A owned a cinema, and the directors decided to acquire two other cinemas with a view to selling the entire undertaking as a going concern. They formed a new company ("Company B") to take the leases of the two new cinemas. But the lessor insisted on various stipulations, one of which was that Company B had to have a paid up share capital of not less than £5,000 (a substantial sum a the time). Company A was unable to subscribe for more than £2,000 in shares, so the directors arranged for the remaining 3,000 shares to be taken by themselves and their friends. Later, instead of selling the undertaking, they sold all of the shares in both companies and made a substantial profit. The shareholders of Company A sued asking that directors and their friends to disgorge the profits that they had made in connection with their 3,000 shares in Company B - the very same shares which the shareholders in Company A had been asked to subscribe (through Company A) but refused to do so.
  22. ^ Industrial Development Consultants v Cooley [1972] 1 WLR 443 (corporate information), Canadian Aero Service v. O'Malley (1973) 40 DLR (3d) 371 (corporate opportunity) and Boardman v Phipps [1967] 2 AC 46 (corporate opportunity, which again, the company itself had declined to take up)
  23. ^ Although an injunction restraining a director from doing so was apparently refused in the poorly reported decision of London & Mashonaland Exploration Co v New Mashonaland Exploration Co [1891] WN 165, approved op cit in Bell v Lever Bros [1932] AC 161 at 195.
  24. ^ Norman v Theodore Goddard [1991] BCLC 1027
  25. ^ Norman v Theodore Goddard [1991] BCLC 1027

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Board of directors - Wikipedia, the free encyclopedia (4018 words)
In large public companies, the board tends to exercise more of a supervisory role, and individual responsibility and management tends to be delegated downward to individual professional executive directors who deal with particular areas of the companies affairs (such as a finance director, a marketing director, etc.).
Because directors exercise control and management over the company, but companies are run (in theory at least) for the benefit of the shareholders, the law imposes strict duties on directors in relation to the exercise of their duties.
Historically, director's duties have been owed almost exclusively to the company and its members, and the board was expected to exercise its powers for the financial benefit of the company.
Hyperion Solutions Corporation - Corporate Governance (786 words)
Directors are expected to become sufficiently familiar with the Company's executive officers as to be able to offer personal feedback on the performance of such officers, and by participating in an Annual Executive Talent Review, to become personally familiar with the Company's senior management.
It is the responsibility of the Board to cause management to undertake succession planning and performance review of senior managers of the Company on a regular basis, and to report on the status of those efforts to the Board or a committee thereof.
The Board as a whole and each committee of the Board are authorized to directly retain and consult with outside experts as the members deem appropriate.
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