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Company Management: DUTY TO EXERCISE AN INDEPENDENT DISCRETION

This duty is closely related to the duty of directors to act in the interests of the company and the company alone. The directors should be ...

This duty is closely related to the duty of directors to act in the interests of the company and the company alone. The directors should be independent of external influence and should not dance to the tune of any person other than the company. Indeed , directors may be nominees, but when it comes to directing hthe company, their duty to exercise an independent discretion comes above everything else. They should therefore have an unfettered discretion. They should not be dummies, puppets or stooges of any person.

In the case of S V SHABANIE, a judge did not mince his words when he said the following:-

“ I want to destroy the idea that puppets cn be lawfully employed in our company system. By that I mean, persons placed on boards who pretend to have taken part in resolutions of which they know nothing. Our law does not know the complete puppet who pretends to take part in the management of the company when having no idea what it is to which he puts his signature. It is utterly foreign to have basic concepts of our law and the courts will punish it as a fraud, all the more when entire boards consist of puppets manipulated from outside by persons who are ostensibly unconnected with the company.”
 Company Management: DUTY TO EXERCISE AN INDEPENDENT DISCRETION
Great words, those, need we say more?

DUTIES OF CARE AND SKILL
Directors have a duty to display reasonable care and skill in the execution of their duties. Decided cases show, this duty is not heavy or onerous.

In the case of RE: CITY EQUITABLE FIRE AND INSURANCE COMPANY LTD, the company experienced serious shortfalls. The MD was convicted of fraud. The liquidators sought to make other directors liable in negligence for failing to detect the frauds. The court held as follows:-

“ A director need not exhibit in the performance of his duties a greater degree of skill than may be reasonably expected from a person of his knowledge and experience. A director of an insurance company, for instance does not guarantee that he has the skill of an actuary or a physician.”

Directors should act with such skill and care as is reasonably expected to of them having regard to their knowledge and experience. They are not liable for mere errors of judgement. In the case of RE: DENHAM & CO. for instance a director had recommended payment of divident out of capital. He was not held liable because he was only a country gentleman and not an accountant!

The extent of this duty will also depend on the nature of the company’s business operations. Having regard to the exigencies of business and the articles of association, some duties may be left to other officials and a director may be justified in trusting that official to perform his duty honestly.

In the case of DOVEY V METROPOLITAN BANK OF ENGLAND AND WHALES, a director delegated the task of drawing up accounts to others. It was heldhe was entitled to reply n those accounts in recommending the payment of a dividend which was made out of capital.

“The duties of care and skill are light compared to those of loyalty and good faith but the directors may not be indifferent or be mere dummies.”

NOTE Examiners tend to require candidates to explain and discuss both the common law and statutory duties of directors.