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Chapter – 10

Directors Capabilities and Responsibilities

Duties & Responsibilities of a Director
The general duties: The general duties mean a director must act in the
interests of the company and not in the interests of any other parties –
including shareholders: The Company comes first.

1. Duty to act within the company’s powers

2. Duty to promote the success of the company
3. Duty to exercise independent judgment
4. Duty of skill, care and diligence
5. Duty to avoid conflicts of interest
6. Duty not to accept benefits from third parties
7. Duty to declare an interest in a proposed transaction or
Core Competencies of a Director

The core competencies of Director could be analyzed in many

1. Strategic leadership:
- Holds a clear vision of the organization which is shared by
the board and staff
- Demonstrates the ability to lead the organization toward
shared vision
- Distinguishes and articulates connection between personal
and organizational vision
- Keeps an awareness of the organization as a whole as well as
the complexity of its parts
Core Competencies of a Director
2. Effective communications
- Fosters and sustains internal/external relationships
- Demonstrates an adaptive communication style suitable for a wide range of
- Actively listens to seek clarification and understanding
- Open to considering other view points
3. Program strategy and alignment
- Creates shared understanding of organizational values, goals and unique niche
- Designs a programmatic strategy to achieve organization’s goals
- Recognizes the connection between fundraising strategy and program goals
- Identifies the knowledge and skills needed to grow the organization and knows
where to get them.
- Understands how to craft meaningful messages to the organization’s key audiences
- Strategically collaborates and partners with other organizations
Core Competencies of a Director
4. Management of staff and volunteers
- Builds meaningful partnerships with individuals at various levels of the
- Nurtures relationships with diverse backgrounds and value systems
- Manages divergent needs and wants within the organization
- Develops a team environment and fosters empowerment within the
- Manages staff development as part responsibilities
- Practices coaching and mentoring of staff
5. Managing yourself
- Practices self awareness
- Establishes a level of comfort in asking for support when needed
- Manages time effectively
- Maintains and promotes a work and life balance
Core Competencies of a Director
6. Shared leadership with the Board of Directors
- Recognizes the role the board plays in the organization
- Understands the Executive Director’s responsibility to the
- Communicates effectively and strategically with the board
- Develops leadership and works with the board at multiple
levels. Whole board, committees, individual actions
Desirable Attributes in a Director
1. Managing vision and purpose: Communicates a compelling and
inspired vision of the future that can be shared by all stakeholders.
2. Able to make a valuable contribution and mentor the CEO:
Directors must be able to make a significant contribution.
Mentoring the CEO is always a big part of the job on a young
company board.
3. Experience on boards: Ideally, all prospective directors should have
many years of experience on other boards.
4. Directors that 'look good': Directors experiences inside the large
organizations are so different that their instinctive reactions are
often the exact opposite of what a young company needs.
Desirable Attributes in a Director
5. Time Commitment: The majority of individuals who could be good
directors just don't have the time available.
6. Every director must make a meaningful investment: It is essential
every board member makes a meaningful investment in the
7. Experience: To have the experience, investment capability and time
availability, most directors will be ex C-level executives. That means
most directors will be in their later 40's or older.
8. Ethics and values: Believes in integrity of action that is based on
shared values and beliefs.
9. Perspective: Has the ability to see multiple points of view on any
issue and can project potential scenarios into the future for strategic
planning purposes.
Desirable Attributes in a Director

10. Priority setting: Sets and spends time only on the important
matters, focusing on key issues and ends.
11. Business acumen: Understands how an organization inclusive of
multiple systems works and the factors that makes an organization
12. Team player: Understands the value of teams and actively works to
promote team work at all levels of the organization, appreciating
diverse opinion.
13. Decision-making: Makes decisions based on analysis of the available
information and a mixture of wisdom, experience, and judgment.
The Role of Directors
1. Duties: The basic legal duties of directors are to act in good faith in
the interests of the company and for a proper purpose; and to
exercise care and skill.
2. Supply of Information: The effectiveness of a board is dependent to
a substantial extent on the form, timing and quality of the
information which it receives.
3. Training: On the first occasion that an individual is appointed to the
board of a listed company, he or she should receive induction into
the responsibilities of a director.
4. Executive Directors: Executive directors share with their non-
executive colleague’s overall responsibility for the leadership and
control of the company.
Qualifications of a Director

1. Individuality: A director must be an individual person. A group of

people or a clan can not be a director of a company.
2. Competency: Director has to be competent to enter into a contract.
That means lunatic person or incompetent person is not capable to
be a director.
3. Share qualification: Director holds share qualification that means
director has to buy share of the company.
Disqualifications of a Director

The following persons are disqualified for appointment as director of a


1. A person of unsound mind

2. An undercharged insolvent or one whose petition for declaring himself so is
pending in a court.
3. A person who has been convicted by a court for any offence involving moral
4. A person whose calls in respect of shares of the company are held for more
than six months have been in arrears
5. A person who is disqualified for appointment as director by an order of the
court on grounds of fraud or misfeasance in relation the company.
Power of the Directors

The directors can do such act only on receiving such authorization.

1. The power to make calls on shareholders in respect of money unpaid

on their shares.
2. The power to issue debentures.
3. The power to borrow moneys otherwise than on debentures.
4. The power to invest the funds of the company.
5. The power to make loans.
Power of the Directors

Furthermore, there are certain other powers specified the company act under
various sections which shall be exercised by the board of directors only at the
meeting of board. These powers include:

1. To fill vacancies in the board.

2. To sanction or give assent for certain contracts in which particular directors,
their relatives and firms are interested.
3. To receive notice of disclosure of directors’ interest in any contract.
4. To receive notice of disclosure of shareholdings of directors.
5. To appoint as managing directors or manager a person who is already
holding such a post in another company.
6. To make investments in companies in the same group.
Power of the Directors

The board of directors can also exercise certain other powers as listed below with the
consent of the company in general meeting, as in the case of an amalgamation scheme:

1. To sell, lease or otherwise dispose of the whole or substantially the whole of the
undertaking of the company.
2. To remit or give time for repayment of any debt due to the company by a director
except in the case of renewal or continuance of an advance made by the banking
company to its director in the ordinary course of business.
3. To borrow in excess of capital.
4. To contribute to charitable and other funds not relating to the business of the
company or the welfare of its employees beyond a specified amount.
5. To invest compensation amounts received on compulsory acquisition of any of the
company’s properties.
6. To appoint a sole selling agent.
Liabilities of Directors
under certain circumstances, a Director may be held liable on behalf of the company.
These circumstances are:
1. Debts of the Company: Generally, a director is not personally liable for any debt of
the company unless fraud on the part of such director can be established.

2. Liabilities for company’s contracts: A director is, generally, not liable for any
contract entered into by the company, unless expressly provided for, or fraud on
the part of such director can be established.

3. Refund of share application money: A director is personally liable along with the
company to repay the share application or excess share application money.
Liabilities of Directors
under certain circumstances, a Director may be held liable on behalf of the company.
These circumstances are:
4. Liability to pay for qualification shares: If the director has not acquired his or her
qualification shares within the prescribed time period and the company goes into
liquidation the day after this period expires, the director will be called upon by the
official liquidator to pay for the shares he or she was supposed to have purchased.

5. Fraudulent conduct of business: A director may be held personally responsible,

without any limitation of liability, for all or any of the debts or other liabilities of
the company if he or she was knowingly party to the fraudulent carrying on of
Directors Liability to the Company
1. Ultra vires acts: Directors are personally liable to the company in matters of illegal

2. Negligence: A director may be held liable for negligence in the exercise of his

3. Breach of trust: Since the directors of a company are trustees of its money and
property, they must discharge their duties in that spirit to the best interest of the

4. Misfeasance: Directors are liable to the company for misfeasance, i.e. willful
misconduct. For this purpose, they may be sued in a court of law.
Effectiveness of the Board of Directors
1. Management decisions confirmation: Directors are confirming management
decisions on major changes in objectives, policies and those transactions that will
have a substantial effect on the success of the company.

2. Providing advice: Directors are providing constructive advice to the executives

through discussion on important matters such as business outlook, new
government legislation, wage policy etc.

3. Selection: Selecting chief executives and confirming the selection of other

executives in the company made by chief executives.

4. Reviewing: Directors are reviewing the results of the company’s current