Code of Good Governance (5)

Towards Ethical Excellence

FOLLOWING up on our previous articles, we will now discuss the responsibilities of the board members. Since the board is composed of various members, the best practices require that each member of the board should be held individually responsible for his/ her activities as board member. The directors are required to exercise their powers and carry out their fiduciary duties with a sense of objective judgment and independence in the best interests of the listed company.

Principal responsibilities of the director/board member include the following:
· Duty of Good Faith: The duty of good faith demands that the director is reliable, trustworthy, act with integrity and does not seize corporate opportunities for his own self-interest. It further requires the director to act in the best interest of the company at all times and to avoid any action that causes or can cause any conflict of interest with the company. The shareholders and related stakeholders must be confident that the director will at all times deal with the affairs and decisions of the company in good faith and unquestionable trust. Without good faith and trust, no director has any business serving on the board of a company.

· Duty of Skill: The duty of skill deals with the necessity of demanding from the management timely, accurate and complete information and data relating to the affairs of the company. The director’s skill and knowledge must be used and applied in the analysis and evaluation of information and reports. Right decisions demand the honest application of brainpower and the most appropriate ways of conduct.

· Duty of Diligence: The duty of diligence makes the director’s knowledge of the industry in which the company is operating a pre-requisite for his selection to the board. The director must use such industry knowledge to pay attention to the details of all proposals referred to the board for consideration. Part of the details that need to be considered to arrive at board resolutions are the company’s relationships with its stakeholders. Those resolutions might be received by shareholders and stakeholders. The other dimension that must be looked at by the director in a diligent manner is the impact of the company’s business and decisions on others – what kind of precautions he needs to consider to mitigate any negative impact on others. ‘Others’ here include customers, service users, competitors, and the society within which the company operates. The social responsibility of the company’s business must be respected and protected.

· Duty of Care: Organization for Economic Cooperation and Development “OECD” defines this as the duty of a board member to act on an informed and prudent basis in decisions with respect to the company. Often interpreted as requiring the board member to approach the affairs of the company in the same way that a ’prudent man’ would approach their own affairs. Liability under the duty of care is frequently mitigated by the business judgment rule.

· Duty of Loyalty: OECD defines this as the duty of the board member to act in the interest of the company and shareholders. The duty of loyalty should prevent individual board members from acting in their own interest, or the interest of another individual or group, at the expense of the company and all shareholders. Each director is held personally accountable to the company and its shareholders, if he violates his duty of loyalty to the company. He can be personally sued by the company or the shareholders for such violations. To perform the above key responsibilities, the board can be guided by the following:

· Each director should ensure that he/she has familiarized himself/herself with the by-laws of the company, its internal regulations and the general and specific obligations of his office.

· Each director should represent the interests of all shareholders and should act under all circumstances in the best interests of the company.

· Each director should ensure the effective functioning of the board of directors (a director should not accept more than a number of other directorships so as to be able to properly discharge his duties).

· Each director must take into account the legitimate expectations of all of the company’s partners or stakeholders (employees, clients, executives, suppliers and creditors).

· Each director must report to the board any conflict of interests, whether actual or potential and abstain from taking part in voting on the related resolution.

· The director should apply to his/her duties the necessary time and attention, and should, subject to all applicable laws and regulations, consult the corporate governance and nomination committee before accepting any additional seat on another board of directors.