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Message: Feduciary Duty of Directors

Recent posts on this hub got me wonderin about the "Duties" of Directors. Is the director legally obligated to the Company ahead of the shareholders?

I consulted the Canadian and Ontario Business Corporations Acts and various internet sites.

To my surprise I discovered thar a Directors' primary feduciary duty is to the Corporation ahead of the shareholders.

122. (1) Every director and officer of a corporation in exercising their powers and discharging their duties shall

o (a) act honestly and in good faith with a view to the best interests of the corporation; and

o (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances

fiduciary duty

In Canada, directors are regarded as fiduciaries of their corporation and, as such,

directors must ensure the corporation’s interests are paramount. It is the fiduciary duty

of the director to act honestly and in good faith, with a view to the best interests of

the corporation. If a director fails to meet his or her fiduciary duty, courts will hold the

director strictly liable.

The fiduciary duty has several ramifications. It obliges the director to prefer the interests

of the corporation over others (including, for example, a shareholder who might have

nominated the director to the board).

In a 1998 Supreme Court decision, the court held that BCE Directors acted properly in protecting the rights of the Corporation over the interests of certain shareholders.

When the Supreme Court ruled on the BCE case, they clarified that directors have a duty to consider the effect of their decisions on stakeholders, but that their primary duty is to the corporation.

From the Supreme Court ruling: http://scc.lexum.org/decisia-scc-csc/scc-csc/scc-csc/en/item/6238/index.do

(vii) Fair Resolution of Conflicting Interests

[81]As discussed, conflicts may arise between the interests of corporate stakeholders inter se and between stakeholders and the corporation. Where the conflict involves the interests of the corporation, it falls to the directors of the corporation to resolve them in accordance with their fiduciary duty to act in the best interests of the corporation, viewed as a good corporate citizen.

For those considering the possibility of joining the GNH Board with the intention of protecting the shareholders, you had best ensure that your recomendations are also beneficial to the Corporation.

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