MEANING OF DIRECTORS DUTIES

https://en.wikipedia.org/wiki/Directors%27_duties
Directors' duties are a series of statutory, common law and equitable obligations owed
primarily by members of the board of directors to the corporation that employs them. It is
a central part of corporate law and corporate governance. Directors' duties are analogous
to duties owed by trustees to beneficiaries, and by agents to principals.
Among different jurisdictions, a number of similarities between the framework for
directors' duties exist.

directors owe duties to the corporation, and not to individual shareholders,

employees or creditors outside exceptional circumstances

directors' core duty is to remain loyal to the company, and avoid conflicts of
interest

directors are expected to display a high standard of care, skill or diligence

directors are expected to act in good faith to promote the success of the corporation

AUSTRALIA
General Law
Directors have Fiduciary Duties under general law in Australia. They are:

Duty to act in good faith and not to act contrary to the interest of the company

Duty not to use power for an improper purpose

Duty to avoid conflicts of interest

Duty to retain discretion

Statutory Duties
Directors also have duties under Corporations Act 2001:

Section 181: Mirrors the general law duty to act in good faith, in the best interests
of the company and for proper purpose.

Section 182: Duty not to misuse position to gain advantage

Section 183: Duty not to misuse information to gain advantage

Section 184: Directors breach section 181, 182 and 183 for gain and where the
conduct is reckless or intentionally dishonest. Criminal penalty will be applied to
against director who breach 184.

UNITED KINGDOM
Acting within powers {s.171 CA 2006}
Directors are also strictly charged to exercise their powers only for a proper purpose. For
instance, where a director to issue a large number of new shares, not for the purposes of
raising capital but to defeat a potential takeover bid, that would be an improper purpose.
However, in many jurisdictions the members of the company are permitted to ratify
transactions that 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.
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.

Promoting company success

s.172 CA 2006, "to promote the success of the company for the benefit of its members as
a whole". It sets out six factors to which a director must have regards in fulfilling the
duty to promote success. These are:

the likely consequences of any decision in the long term

the interests of the companys employees

the need to foster the companys business relationships with suppliers, customers
and others

the impact of the companys 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 e.g.,
s.309, which permitted directors to take into account the interests of employees but that
could be enforced only by the shareholders, and not by the employees themselves. The
changes have therefore been the subject of some criticism. Directors must act honestly
and in bona fide. The test is a subjective onethe directors must act in "good faith in
what they considernot what the court may consideris in the interests of the company.
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.

Difficult questions arise when treating the company too abstractly. For example, it may
benefit a corporate group as a whole for a company to guarantee the debts of a "sister"
company, even if there is no "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.
"[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 [sic] must be
present to the mind of any honest and intelligent man when he exercises his powers as a
director."

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.
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.
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 than the prohibition against the transactions with the company,
and attempts to circumvent it using provisions in the articles have met with limited
success.
What was regarded as a wholly unmeritorious claim by the shareholders, [20] held
that:
"(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, 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.

Remedies for breach of duty

As 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
S 176 A Duty not to accept benefits from third parties.
A director must not accept financial or non financial benefits from third parties.

ICAEW GUIDE TO THE DUTIES AND RESPONSIBILITIES OF

DIRECTORS
directors http://www.icaew.com/en/technical/business-resources/legal-regulatory-taxgovernance/directors-duties/the-icaew-guide-to-the-duties-and-responsibilities-ofdirectors
This is a short overview of the key general duties of directors. More extensive guidance
on the duties and responsibilities of directors is contained in ICAEW guidance
Who is a director?
You will normally know if you are a director as you will have formally accepted the
position. However, if you exercise sufficient influence over a company or act as if you
are a director, you may be treated as a director for certain purposes even if not formally
appointed.
Should you be a director?
Certain people are prohibited from acting as a director, including persons under 16 years
of age, bankrupts, disqualified persons and a person acting as auditor of the company.
(regulation 9). While there is no mandatory qualification required to be a director, a
director is required to perform the duties outlined below and so must be capable of doing
so.

What are your general duties as a director?

The Companies Act 2006 sets out the seven general statutory duties of a director. These
are listed below with some additional commentary.
To act within powers (regulation 16). This requires a director to comply
with the companys constitution and decisions made under the
constitution and to exercise the powers only for the reasons for which
they were given.
To act in a way the director considers (in good faith) is most likely to
promote the success of the company for the benefit of its members as a
whole (or, if relevant, other purposes specified in the constitution).
(regulation 20-24). In performing this duty, a director must have regard to
all relevant matters, but the following are specifically identified in
legislation:
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
standard business conduct; and the need to act fairly as between members
of the company.
3. To exercise independent judgment, that is, not to
subordinate the directors power to the will of others. This

does not prevent directors from relying on advice, so long as

they exercise their own judgement on whether or not to
follow it.
4. To exercise reasonable care, skill and diligence (regulation
25). This requires a director to be diligent, careful and well
informed about the company's affairs. If a director has
particular knowledge, skill or experience relevant to his
function (for instance, is a qualified accountant and acting as
a

finance

director), expectations

regarding

what

is

reasonable will be judged accordingly (regulation 25).

5. To avoid conflicts (or possible conflicts) between the
interests of the director and those of the company
(regulation 30-36). The prohibition will not apply if the
company consents (and consent meets the necessary formal
requirements).
6. Not to accept benefits from third parties (ie a person other
than the company) by reason of being a director or doing
anything as director (regulation 31). The company may
authorise acceptance (subject to its constitution), for
instance to enable a director to benefit from reasonable
corporate hospitality; and
7. To declare any interest in a proposed transaction or
arrangement (regulation 32-36). The declaration must be
made before the transaction is entered into and the
prohibition applies to indirect interests as well as direct
interests.

In addition to these duties, a director has duties:

to consider or act in the interests of creditors (particularly in times of
threatened insolvency) (regulation 26)
to maintain confidentiality of the companys affairs (a duty which to a
large extent follows from the general duties outlined above).
Duties of the company
Of course the company itself has numerous legal duties. These include duties under the
Companies Act itself, such as to maintain full and accurate accounting records and to
make relevant filings at Companies House (included the annual accounts). It also has to
comply with all other laws and regulations applicable to it (such as tax and employment
laws). As the company acts through the board of directors, the directors are responsible
for ensuring compliance by the company. (regulation 29)
In certain cases, directors are made specifically liable for breach (regulation 68), for
instance, in the case of accounting records, every officer of the company is liable to a
fine, imprisonment or both .
Directors as employees
A director may also be an employee of the company (and is then typically referred to as
an executive director). The general duties of directors outlined above apply equally to
executive directors, but an executive director will also be bound by the terms of his
This note only covers the general duties of directors under the Companies Act 2006 and it
is beyond the scope of this note to identify all circumstances where a director may be
personally liable for acting as a director. By way of illustration only:

 as noted above, under the Companies Act, a director may be liable for failure by
the company to make required filings at Companies House;
under the Insolvency Act 1986, a director may be personally liable for wrongful or
fraudulent trading in the context of insolvency of the company; and
the board and each director has responsibilities under the Health and Safety at
Work Act 1974, breach of which may result in criminal sanctions on a director.
In certain circumstances, a director may be disqualified from being a director
under the Company Directors Disqualification Act 1986.

DIRECTORS RESPONSIBILITIES AND DUTIES

http://www.iod.com/guidance/briefings/cgbis-directors-duties-and-responsibilities
Responsibilities include:
The board of directors of a company is primarily responsible for:

determining the companys strategic objectives and policies;

monitoring progress towards achieving the objectives and policies;

appointing senior management;

accounting for the companys activities to relevant parties, e.g. shareholders.

The managing director/chief executive is responsible for the performance of the
company, as dictated by the boards overall strategy. He or she reports to the chairman or
board of directors.
Duties
Statutory Duties
Directors need to be aware that they are personally subject to statutory duties in their
capacity as directors of a company. In addition the company as a separate legal entity is

subject to statutory controls and the directors are responsible for ensuring that the
company complies with such statutory controls.
The Companies Act 2006 codified certain common law and equitable duties of directors
for the first time. The Act sets out seven general duties of directors which are:

to act within powers in accordance with the companys constitution and to use
those powers only for the purposes for which they were conferred

to promote the success of the company for the benefit of its members

to exercise independent judgement

to exercise reasonable care, skill and diligence

to avoid conflicts of interest

not to accept benefits from third parties

to declare an interest in a proposed transaction or arrangement

The statutory duties that replace the fiduciary or equitable duty are interpreted in
accordance with the previous case law which remains relevant. These statutory duties
cannot be seen in isolation because in addition a director will be subject to a wide range
of regulation and legislation including the Insolvency Act 1986, the Company Directors
Disqualification Act 1986, the Health and Safety at Work etc Act 1974 and the Corporate
Manslaughter and Corporate Homicide Act 2007.
The company secretary as chief administrative officer will be responsible for the
performance of many of the administrative duties imposed under the Companies Act
2006. A private company is not required to appoint a company secretary and where no
company secretary is appointed the duties and responsibilities of the company secretary
will fall on the directors.
Directors may be liable to penalties if the company fails to carry out its statutory duties.
However, they may have a defence if they had reasonable grounds to believe that a

competent person had been given the duty to see that the statutory provisions were
complied with.
One of the main statutory responsibilities falling on directors is the preparation of the
accounts and the report of the directors. It is the responsibility of the directors to ensure
that the company maintains full and accurate accounting records. This includes the
preparation of a balance sheet and a profit and loss account for each financial period of
the company, and the presentation of these to shareholders and, subject to various
exemptions, the filing of the accounts and report of the directors with the Registrar of.

DUTIES:
http://asic.gov.au/regulatory-resources/insolvency/insolvency-for-directors/directorswhat-are-my-duties-as-a-director/
Generally, in addition to the requirement to ensure compliance with general and specific
laws applying to your companys operations, your primary duty is to the shareholders.
However, if your company is insolvent, or there is a real risk of insolvency, your duties
expand to include creditors (including employees with outstanding entitlements).
General duties
General duties imposed by the Corporations Act on directors and officers of companies
include:

the duty to exercise your powers and duties with the care and diligence that a
reasonable person would have which includes taking steps to ensure you are properly
informed about the financial position of the company and ensuring the company doesnt
trade if it is insolvent

the duty to exercise your powers and duties in good faith in the best interests of the
company and for a proper purpose

the duty not to improperly use your position to gain an advantage for yourself or
someone else, or to cause detriment to the company, and

the duty not to improperly use information obtained through your position to gain
an advantage for yourself or someone else, or to cause detriment to the company.
Duty to not trade while insolvent
As well as general directors duties, you also have a positive duty to prevent your
company trading if it is insolvent. A company is insolvent if it is unable to pay all its
debts when they are due. This means that before you incur a new debt, you must consider
whether you have reasonable grounds to suspect that the company is insolvent or will
become insolvent as a result of incurring the debt.
An understanding of the financial position of your company only at the time you sign off
on the yearly financial statements is insufficient. You need to be constantly aware of your
companys financial position.
Regulatory Guide 217 Duty to prevent insolvent trading: Guide for directors
Duty to keep books and records
Your company must keep adequate financial records to correctly record and explain
transactions and the companys financial position and performance. A failure of a director
to take all reasonable steps to ensure a company fulfils this requirement contravenes the
Corporations Act.
For the purposes of an insolvent trading action against a director, a company will
generally be presumed to have been insolvent throughout a period where it can be shown
to have failed to keep adequate financial records.
https://www.ic.gc.ca/eic/site/cilp-pdci.nsf/eng/cl00692.html

THE ROLE OF DIRECTORS

The board of directors of a not-for-profit corporation is responsible for the management
of the corporation. In general terms, this means that the board is responsible for
supervising senior staff, providing strategic planning to the corporation, and developing
and implementing corporate policy. Board members must be (or at least must become)
knowledgeable about the business and financial affairs of the corporation. Where the
corporation is a charity, the board has a heightened duty of care with respect to the
protection of its charitable property.
In discharging its mandate to manage the corporation's affairs, the board must comply
with the objects of the corporation as stated in the letters patent or articles of
incorporation and with the bylaws of the corporation. The board must also comply with
the relevant provisions of the corporations statute under which the corporation is
incorporated and the rules established under the common law (the law established by
courts) governing directors' duties.
THE DUTIES OF DIRECTORS
Directors are required to exercise their power with competence (or skill) and diligence in
the best interests of the corporation. They owe what is called a "fiduciary duty" to the
corporation. The duty is a "fiduciary" duty because the obligation to act in the best
interests of the corporation, at its core, is an obligation of loyalty, honesty and good faith.
Modern corporations statutes governing business corporations provide a concise
formulation of the fiduciary obligation owed by directors. Most of the corporations
statutes governing not-for-profit corporations do not. The formulation of the fiduciary
duty of directors has been developed at common law by Canadian and English courts or
set out in the Civil Code.
Directors' fiduciary duties can be divided into two main branches:
a) The duty of care and,

b) The duty of loyalty.

The duty of care imposes on directors a duty of competence or skill - i.e., a requirement
to act with a certain level of skill; and a duty of diligence. The duty of skill and diligence
must be performed to a certain "standard of care".
What level or kind of skill must a director demonstrate? What level or kind of diligence?
For not-for-profit corporations, the answers to these questions are to be found in any one
of or any combination of the following sources:
the legislation under which the corporation is incorporated;
court decisions which attempt to define the standard of care expected of directors;
non-corporation laws and statutes which impose additional specific duties on
directors;
in trust law, for not-for-profit directors of a corporation organized to pursue
charitable purposes; and,
in Qubec, the directors' duties found in the CivilCode of Qubec
It is generally accepted that a heightened duty of care is owed by directors of a charitable
not-for-profit corporation.
The duty of loyalty requires that a director act honestly and in good faith in the best
interests of the corporation. The duty of loyalty is a personal duty and cannot be
delegated (the "no-delegation rule"). Among other implications, it means that a director is
not allowed to profit from his or her office (the "no-profit rule") and must avoid all
situations in which his or her duty to the Corporation conflicts with his or her interests
(the "no-conflict rule").
The Duty of Care

A. The duty of skill or competence

In carrying out their obligations, directors of not-for-profit corporations must use an
appropriate degree of skill. The common law holds that what is known as a "subjective"
standard applies to directors of not-for-profit corporations incorporated under the Canada
Corporations Act or under provincial incorporation statutes, unless those statutes set out a
different standard. In some provinces, what has been described as an "objective" skill
standard has been set out in legislation. This standard is discussed below. The subjective
standard requires that directors:
exercise such degree of skill and diligence as would amount to the reasonable care that an
ordinary person might be expected to take in the circumstances on his or her own behalf,
but he or she need not exhibit in the performance of his or her duties a greater degree of
skill than may be expected from a person of his or her knowledge and Footnote2
The standard is subjective in the sense that it incorporates a reference to the particular
abilities of the particular director. Since the standard is subjective, it can be applied
differently among board members of a given corporation. For instance, a lawyer or an
individual with business experience will be held to a higher standard of care than
someone with less education or experience.
In contrast, under an objective standard of care all board members - regardless of
background or experience - are assessed against the same benchmark. The most
commonly used objective standard is the conduct that might be expected of a reasonably
prudent person. A higher objective standard, which has never been applied by a court, is
the conduct that might be expected of a reasonable director.
Even when the subjective standard of care applies, this does not mean that a director with
few skills or little experience will escape liability. The conventional wisdom is that such
a director is required to act in accordance with conduct expected of a reasonably prudent
person. This means that a director without the skills required to meet that standard is

obliged to acquire them, or some of them. A director must become informed if he or she
is not already knowledgeable.
A lack of case law in this area means that it is impossible to determine with any certainty
what distinctions would be made by the courts between the subjective and objective
standards of care. Owing to the deference shown by courts to business decisions, and the
difficulty of tracing a decision back to the particular skill level of a director or directors,
the difference between the two standards may be more perceived than real.
Even so, where the subjective standard applies, this can make it more difficult to attract
highly-skilled, experienced or professional nominees for the boards of not-for-profit
corporations.
However, the common law has imposed some reasonable limitations on what can be
expected of directors:
a director is not liable for mere errors in business judgement (e.g., considered
decisions to pursue a particular commercial course made after honest and good
faith evaluation);
directors are justified in entrusting certain matters of business to officers of the
corporation; and,
directors are justified, in the absence of grounds for suspicion, in trusting that
officers of the corporation will perform their duties Footnote3
In practical terms, the following applies:
Directors should make decisions affecting the corporation based on full
consideration of all appropriate material and on the advice of professionals where
required.
Directors should oversee all aspects of the corporation's operations.

 Directors may delegate certain functions to key senior management, but must
maintain a supervisory role.
The board of directors is responsible for regularly reviewing the performance of senior
staff to whom they are entrusting the implementation of the corporation's mandate on a
daily basis.
(B) The duty of diligence
Synopsis
The duty of diligence requires a director to attend meetings and to become as fully
informed as possible regarding all aspects of the corporation, including any issues that
affect the corporation.
Directors have a duty of diligence in their management of the affairs of the corporation
that requires, to the greatest possible extent, regular meeting attendance and development
of a sound knowledge of all aspects of the corporation. As noted above, under the Canada
Corporations Act there is no duty for directors to have a particular skill level. They are
only required to act within their particular knowledge and skill level.
The duty of diligence refers to the obligation of directors to educate themselves about the
corporation's mandate and all aspects of its operations. It is not enough to merely attend
board of directors' meetings. The duty of diligence requires active and concerted effort on
the part of directors to be knowledgeable and ready to make informed decisions affecting
the corporation.
The duty of diligence has a number of practical implications. Directors should:
ensure that the board of directors meets regularly;
attend meetings of the board of directors whenever reasonably possible;

 be thoroughly informed about any decisions the board has to make and ensure that
they are provided in a timely manner before the board meeting with all relevant
documents including agreements, financial reports and information, legal opinions
and other information necessary to make knowledgeable and informed decisions at
the board meeting;
exercise independent judgement when voting in all corporate decisions, and not
simply vote with the majority for no well-informed reason;
ensure that minutes of meetings of the corporation accurately reflect any comments
or votes in opposition to matters acted upon;
carefully review all reports relating to the corporation's financial affairs, including
interim and year end financial statements;
with the assistance of senior staff, carefully review and participate in formulating
the annual budget and strategic plan;
understand and comply with the stated purposes of the corporation as provided for
in the letters patent of the corporation;
understand and carry out their obligations under the corporation's bylaws,
including the requirement to call an annual general meeting and to provide
information to the members at that meeting;
require senior management to provide them with any ongoing operational and
program information;
monitor and supervise the chief staff person and regularly assess his or her
performance;

 be aware of all internal policies affecting the organization and ensure that certain
key policies are in place (such as an investment policy and conflict of interest
policy); and,
be aware of the laws affecting the corporation and obtain necessary legal and
accounting advice.
Duty of Loyalty
Synopsis
Directors must act with honesty and in good faith in what they reasonably believe to be
the best interests of the corporation.
As noted above, the position of a director with respect to the not-for-profit corporation is
that of a fiduciary. As a result, a director is considered to be acting for the corporation's
benefit, and must subordinate his or her personal interests to the best interests of the
corporation. In Qubec, directors must by law "act with honesty and loyalty in the best
interest of the legal which is the civil law codification of the common law fiduciary
duties.
This duty of loyalty involves good faith, trust and special confidence, and is the same
whether the corporation is a business corporation or a not-for-profit corporation. It
requires high standards of honesty and good faith in the exercise of a director's powers
and discretions. It means that a director must always use his or her powers in the best
interests of the corporation. The director may not delegate his or her duty, except under
certain circumstances and with adequate supervision; the director must not profit from his
or her position and must always disclose the entire truth in his or her dealings with the
corporation; and, the director must avoid all conflicts of interest.
A director will never be able to discharge his or her obligations in meeting the duty of
care if the director has acted in bad faith. Intentional dishonesty, incomplete or
misleading representations, and acting from an improper motive can all be characterised

as bad faith. The 'good faith' requirement is the core of the fiduciary relationship and
requires a director to act with pure intentions and with a view to serving the best interests
of the corporation.
Directors may not abuse their powers by exercising them for an improper purpose, - i.e.,
in order to give themselves an advantage or to confer an advantage to someone else, or in
order to unduly discriminate against a person - without their act being justifiable by the
best interests of the corporation.
For instance, they may not use their power by admitting only members sympathetic to
them and refusing to admit or expelling members because they are not.
Not only could such improper actions be set aside by a Court, but they may also result in
the personal liability of the directors towards the corporation and the injured persons.
The duty of honesty and good faith has various practical implications. Directors must:
disclose the entire truth in their dealings with the corporation and actively avoid
any impropriety or dishonesty;
have full allegiance to the corporation's mission and further its cause;
resign as a director where the director has any personal prejudices or beliefs that
are inconsistent with the corporation's mission and that might interfere with the
duties owed to the corporation;
place the interests of the corporation above personal self-interest in all dealings
with the corporation and actively avoid all potential conflicts of interest;
fulfill all of the corporation's reporting obligations with honesty and good faith,
and accurately represent the corporation's financial or other position;

 maintain adequate and accurate books of account, records and minutes of the
corporation;
ensure that all corporate decisions are implemented in accordance with the
applicable board resolution;
accurately portray the corporation's programs and objectives to the general public
and to any requesting government authority;
not disclose any information acquired in connection with their position as directors
that might be harmful to the interests of the corporation and that is not already
available to the public; and,
fulfill the terms and restrictions of any special purpose trust fund maintained by the
corporation, honestly and in good faith.
Non-delegation
Synopsis
A director must not delegate his or her general responsibility for governing the
corporation. In certain circumstances it is permissible to delegate particular tasks related
to management of the corporation, provided there is proper supervision of the party to
which the task is delegated.
Directors are entitled to delegate some of their responsibilities to committees, officers, or
members of the corporation. In Qubec, directors of Companies Act corporations may not
delegate powers to any committee other than an executive committee composed
exclusively of directors and created by a bylaw adopted by 2/3 of the members present at
a special meeting. In other jurisdictions delegation powers are not so prescribed, however
wholesale delegation - most obviously, where a director purports to give over all his or
her responsibilities as a director to another person - is never permitted. Such an action
would usurp the role of the corporation's members in electing directors.

The fact that directors have delegated a particular task does not relieve them from
responsibility, and they should always supervise the carrying out of the task. Directors
should remember that they are ultimately accountable for the overall management of the
organization.
Delegation of core responsibilities, such as giving an executive committee authority to
bind the corporation, should be contemplated in the bylaws. If such delegation is not
addressed in the bylaws, or alternatively in an explicit resolution of the full board setting
out the terms of the delegation, actions or decisions taken by the body to whom the
delegation was made may be subject to challenge. Generally, the broader the delegation,
the stronger the argument to be made that it needs to be contemplated in the bylaws.
The line between governance and operational matters is often unclear. As a general rule,
it is best to limit delegation of core functions to board commit-tees authorized by the
bylaws. Other matters may be delegated by way of board resolution.
The terms of reference of any delegation, whether found in the bylaws, resolutions or
both should set out the scope and duration of the delegation, the requirements for
reporting back to the full board, and the relationship between the board and the body to
which the matter is delegated. (See chapter 5 for further information on the relationship
between boards and various types of committees.)
Duties Towards Members**
Directors have certain duties to the members of the corporation. They must ensure that
the corporation and its directors abide by the terms of its letter patent and bylaws, which
have been considered by the courts as akin to a contract between the corporation and
its Footnote12
Directors must also treat all members equally (for instance, by fixing or collecting dues
or enacting rules or bylaws), unless the best interests of the corporation clearly require
otherwise.

Directors must tread especially carefully in the sensitive and litigation-rich area of
members' discipline.
Before suspending, fining, expelling or refusing to readmit a member, directors must
make sure that the bylaws of the corporation clearly empower them to do so, and that all
the internal procedural steps they set out (notices, delays, inquest and recommendation by
a committee, hearing, internal appeal, etc.) have been strictly adhered to.
The proceedings must afford a reasonable degree of procedural fairness - i.e., fair play
and good faith. The disciplined member should be given fair notice, and an opportunity
be to be heard (and have counsel present) in his own defence by board members open
to Footnote13 Otherwise, the board's decision will be subject to review by a Court. Directors
must be careful not to impinge on the member's reputation, for example by publicising at
large his expulsion and the motives thereof, or by having a general meeting of members
ratify it when a board resolution is sufficient according to the bylaws. They stand to be
personally sued for damages if they do.
Sample Questions For Prospective or Current Directors To Ask the Organization
1. Does the board of directors meet regularly? How often does it meet?
2. What notice and preparation (e.g., agendas, reports, etc.) does the corporation give
to directors in advance of board meetings?
3. Does the corporation have written policies such as a conflict of interest policy and
an investment policy?
4. Does the corporation maintain the proper books of account, records and minutes of
meetings?
5. Does the corporation provide board members with ongoing operational and
program information?

6. How does the board monitor and supervise the chief staff person? Does it do an
annual performance appraisal of this person?
Sample Questions For Directors To Ask Themselves
1. Do I understand the duties of a director of a not-for-profit corporation?
2. Do I attend board meetings regularly? Do I prepare adequately for them? Do I read
materials and consider them carefully?
3. Do I exercise independent judgement when voting on corporate matters?
4. If I am serving on the board of a charitable corporation, do I understand the
specific fiduciary responsibilities that I have?
5. Am I alert to any potential conflicts of interest or appearance of personal gain?
6. If I sit on the board owing to my affiliation with a stakeholder group, do I
understand that my affiliation with that group cannot determine my vote on any
board decision? Am I prepared to declare a conflict of interest, and in some cases
resign, if I am unable to reconcile my role with the stakeholder group and my
position as a director?
7.

Have I read and do I understand the corporation's policies on matters such as

investment and conflict of interest?