Governance Issues - Fiduciary Duty

Even if you've never heard of Fiduciary Duty, once you understand what it means you might marvel at how simple it is and how straight forward the common sense its basis is.

In short as a director you owe a Fiduciary Duty to someone, but whom?
Simple, you have a fiduciary duty to the shareholders or owners of the company. Some might say you owe a duty to preserve the perpetuity of the entity & the best interests of the shareholder which is also right.

There maybe a point one day that the best interests of the shareholder is to wind the company up, sell it off to outside buyers. The shareholders aim is to make a profit and there are times when the best result is to shut an entity but hopefully that's not your company or entity.

What about Nominee Directors? Also quite simple. Nominee directors, where they occur, are generally appointed by stakeholders that have mutual & separate interests to the company. Yes they may be there on the stakeholder's bequest, but that's where that link is supposed to end. Nominee directors may be appointed by an outside group but it does not over ride their director's role as a board member under the Corporations Act. They must act in the best interests of the shareholders...not who nominates them.

Their fiduciary duty is the same as every other director on the board.

Remember on a "board" may not call themselves a board nor consider themselves a director...but if the Corporations Act does, then the courts will and so will the shareholders.

In the case of De Factor Directors, they are people not on the board who have undue control, effect or power over decisions being made by the board. There's legal precedents on what they are, be sure you are not one & your board has none behind the scenes. Its illegal, hence big penalties

Not far away from Fiduciary Duty you should also store your understanding of a "Reasonable Person's Test" or in other words...

What would a reasonable person be expected to do in the same situation?

Be aware of this, be aware this can extract you from or land you in trouble. Remember ignorance is not a defence if indeed the matter in question is something a reasonable person should be expected to know, adhere to, avoid...whatever the case maybe.

Not only is ignorance not a defence do not rely on 'not making a decision' as being a game breaking safe harbour. It isn't.

NOT MAKING A DECISION IS A DECISION,
YOU AS A DIRECTOR ARE LIABLE FOR ALL DECISIONS. 

Short extra lesson, if the board majority makes a decision and you don't like it you have 2 options. You can support the decision you opposed as a united board or you can resign. The old "Let the minutes record I voted against this" is pretty silly as it doesn't really mean much if you didn't resign. If you don't want to be liable for the decision, resign. There is another option, ask for more research, data for a review of the decision I guess but you'd hope much of the work was done the first time. If you have a board that is controlled by a set faction & bad decisions are being made you have 2 real choices...

Decide if you want to stay and get things fixed or if its too far gone, resign.

Do not make yourself a Martyr nor a Slave. Count on it, it never ends well for slaves or martyrs.

In all your travels with boards as either an Executive or a Director...GET TRAINING.
Skills Perish, Get Regular Refreshers. If nothing else it will bump people to reminding themselves what Fiduciary Duty is, to whom it is owed, what the Reasonable Persons Test & remind everyone that a director is personally liable, legally liable for every decision they make whilst they're on a board.

Personally Liable. Both legally & financially.