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Corporate governance

The effects of corporate governance on

directors’ powers and duties

Directors' powers and duties can generally be determined by reference to the
company's constitution and shareholder agreement. In addition, they may be derived
from individual contracts of service and company law.

A director owes his duties to the company itself, that is to the shareholders as a body
and those duties are enforceable by the company.

One of the ways in which corporate governance affects a director's duties and
powers is by having a board with non-executive directors. Non-executive directors
can scutinise decisions made by executive directors.

They can also take responsibility for monitoring the performance of executive
management, especially with regard to the progress made towards achieving the
determined company strategy and objectives.

The board subcommittees discussed above (nominations/remunerations/audit) can
also detach a director from making decisions which in the past would have been
within their powers.

The rules and standards which make up corporate governance are aimed at a much
wider audience than just shareholders. The rules are intended to benefit
stakeholders. It can therefore be argued that the legal duties a director has and the
rules and standards which make up corporate governance have different aims. A
director could be in breach of his legal duty yet still be complying with the principles
of corporate governance.

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