Directors' duties: Go back to basics

IT'S tough to be a director of a listed company these days. When things go wrong, they are always in the line of fire. Did they perpetrate or condone the wrongdoing? Or were they just wilfully blind, negligent or sleeping on the job while collecting their fees? The buck stops at the board, and the law does not make significant distinctions between directors who are executive and non-executive, or independent and non-independent. Every director owes fiduciary duties.

These obligations are manifold. Directors face a raft of rules and regulations - the Companies Act, the Securities and Futures Act, the Listing Manual, and their general fiduciary obligations. And these are not exhaustive. It is a challenge for any director to keep up.

Directors cannot act in a manner that will harm the company. They must exercise reasonable care and skill in the conduct of the company's affairs. That is obvious, but it does not end there. They also cannot allow their private interests to conflict with the company's interests. As a corollary to this, there are restrictions against self-dealing, which find expression in rules which limit interested or related-party transactions (IPTs or RPTs). Clearly, IPTs and RPTs are not prohibited, but there are constraints. Depending on their magnitude, they must be disclosed, and there must be consent, by the board, and sometimes by the shareholders.