Company Directors: Their Powers, Fiduciary Duties, and Duties to Shareholders.

Introduction Each and every company has a hierarchy in management and decision making. The decision making powers are assigned to the board of directors which is made up of a body persons who are either elected or appointed by the shareholders. The directors have the duty to oversee all the activities of the company and they are also required to sign off on any major company activity.

Under Canadian law, and most if not all other legal system, each company is required to have a set of bylaws. Bylaws are basically rules which govern the internal management of the company and are they should not point make provisions which go against those made by the government. Therefore it is these by laws which clearly set out the powers and duties of the company directors among other things.

This paper will therefore look at the definition of a company director under Canadian law. It also looks at the powers, fiduciary duties, and the duties of directors to shareholders as they are provided for under Canadian laws, specifically business law(s).

The Powers of Company Directors The directors of a company have the powers to administer the affairs of the company and this includes entering into legal contracts in the name of the company and on its behalf of the company. Therefore the directors have the powers to exercise all powers which the company may lawfully posses.

The directors have the powers to authorize any kind of company expenditure and may also enlist help by appointing an officer of the company to whom they may delegate this duty. Other powers branch from this power and these include; the powers to borrow money from any financial institution, or individual on terms, conditions which they may deem to be expedient. Power to increase, limit or even decrease the amount borrowed, and the powers to secure securities be they bonds or debentures, or any other future borrowing.

The directors may also enter into trust agreements with a trust company if they feel there is need to create a trust fund for the purposes of availing capital and interest. This is done in accordance with the terms which the directors have set with the main goal of promoting company interest.

The director also have powers to enter into agreements for purposes of securing donations, endowments, bequests, grants, gifts, and credits which they deem as necessary for furthering the objectives of the company.

The directors of the company may appoint persons either from the company or from outside to come in and perform certain duties in the company as they deem fit. The appointed persons shall have the express authority to perform the duties for whose performance they have been appointed or those prescribed by the directors at the time of appointment.

The directors have the powers to decide the amount of remuneration to be provided to all officers, employees, agents and or committee members and this shall be done by a resolution passed by the members. However that resolution will only come into effect if at the next meeting of the directors, it is confirmed failure to which it shall cease to apply, (Obal, & Walsh, 2005).

Fiduciary duties of Company Directors A fiduciary duty refers to a legal relationship that exists between two parties, in this case the directors and the shareholders, and this is based on confidence and trust. In a company the directors have the duty to act for and on behalf of the shareholders. In the setting of a company, every decision made by the board of directors should for the sole benefit of the shareholders.

The basic common law fiduciary duty provides that the directors are required to be loyal, act in good faith and to avoid acting in conflict of interest.

The duty to be loyal is a duty imposed on all officer of the company including directors. The duty entails a number of things these are; the director should not compete unfairly with the employer, and also to avoid divulging confidential trade secrets or any other confidential information acquired in the course of employment. This duty is implied in every employment contract.

Directors and officers of a company are required to act in a manner that is honest and in good faith. This should be done with a view to attaining the best interest of the company and in this process they should exercise due diligence, care and skill that any reasonable prudent person would exercise if placed in the same circumstances. In acting in the best interest of the company the directors are required to act only for the benefit of the company as a whole and not any individual person be it a single or group of share holders, (Sharon, 2004). As regards not acting in a manner that will lead to a conflict of interest, a director is required to act in the interest of the company as a whole rather than his own individual interests.

In a situation where a conflict arises the director affected is required to disclose to the company, in writing, the specific area in which the conflict of interest has arisen. Once this is done the director is prohibited from voting on any resolution which touches on the matter in which there is a conflict. This was clearly set out in the Nova Scotia Court of Appeal in the case of Keating v. Bragg where the court made it clear that, "a director’s duty is to vote in accordance with what is in the best interest of the company and in a manner that is not oppressive to the interest of a minority shareholder in the company." (Keating v. Bragg, 1997).

There has been a general trend which is aimed at extending the scope of fiduciary duties to provide more protection to the employer. This has however been limited by the countervailing policy of allowing for free competition, (Douglas, et .al, 2000). Duties of directors to shareholders

Directors also have the duty to exercise their powers for the purpose for which the powers were conferred on them as per the provision of the company’s bylaws. They are therefore required to exercise the care, diligence, and skill that a reasonable and prudent director would exercise in the same circumstances and taking into account; the nature of the company, the nature of the decision, and the position of the director and the nature of the responsibilities undertaken by him or her though these should not limit him.

Therefore directors should not use their powers for any ulterior motive or purpose or to manipulate the voting powers or rights of other directors.

Directors have a duty to exercise discretion in conducting their activities such as not entering into a contract as to how they will vote at an upcoming board meeting.

Directors have a duty to account to the shareholders for a company’s performance. This means that the directors during the company’s general meting or any other meeting of the shareholders, are required to explain the circumstances surrounding the company’s performance in the concluded financial year.

The directors have a duty to ensure that the decisions they make are not made on the basis of their own interests but on those of the shareholders as a whole. This is because the bylaws provide that they are acting on behalf of the company which is in real sense the shareholders.

The directors have a duty to act collectively in the exercise of the powers vested in them under the company bylaws, (Barry, et al, 2006).

Conclusion

Company directors’ duties can be summarized into one general duty which is to act in the best interest of the whole company.  This can be seen from the fact that all of the powers and duties are vested on the directors for the sole purpose of ensuring that the interests of the company are catered for. This is also seen from the fiduciary duty of directors to avoid having a conflict of interest and therefore limiting their acting on the basis of self interest.

References Douglas G. G., et .al(2000).Canadian Labour and Employment Law for the U.S. Practitioner. BNA books: Washington DC.

Sharon, W. (2004, September 7). Canada: Directors’ Fiduciary and Statutory Duties. Retrieved from http://www.mondaq.com

Barry, J .R. et .al (2006). Directors' Duties in Canada: Toronto: CCH Canadian Limited.

Obal, S., & Walsh, J. (Eds.). (2005). Corporate Governance in Canada: A Guide to the Responsibilities of Corporate Directors in Canada. Ontario: Osler.

Keating v. Bragg (1997), 158 N.S.R. (2d) 242, [1997] N.S.J. No. 312 (Q.L.) (N.S.C.A.).