If you suspect your fellow board members aren’t doing the right thing by the company, it’s often difficult to call the shots. Sometimes, however, it’s a matter of holding the line when you’ve met your match.
What are your legal responsibilities as a company director?
Australian law imposes responsibilities on company directors including to:
- act with reasonable care and diligence
- act in good faith, in the best interests of the company
- avoid conflicts of interest
- not abuse position
- not improperly use information.
Despite rigorous legal regulation, company directors must be allowed to exercise business judgment in making decisions, so long as:
- they’re made in good faith
- there’s no personal interest
- directors are well informed
- directors believe they’re acting in the company’s best interests.
What actions can you take if you suspect a board member has dropped the ball?
If you’re concerned your board isn’t acting in the best interests of the company, there are three critical things you need to do.
- Serve up a discussion with the board
Discuss the issue at a board meeting. Even if the outcome isn’t what you’d like, ensuring your views are recorded is an essential aspect of the long game. Remember, you may bear some liability if things go wrong, so protect yourself by gathering information about the decision-making process.
Make sure the discussion canvasses all aspects of the director duties. Ask questions such as:
- Is this decision in the company’s best interest?
- What are the possible conflicts of interest for board members?
Record the minutes of these discussions in detail.
- Follow all relevant company policies
It’s crucial to follow any relevant policies and procedures, for example, conflict of interest policy or grievance policy. It is an essential way to demonstrate the board has genuinely engaged in due diligence.
- Seek legal advice
Remember what’s at stake if you believe a decision isn’t in the best interest of the company. A breach of director’s duties can constitute a breach of the law. Directors can be personally liable for company debts. You may have to compensate the company. As a board member, you may face severe fines or even imprisonment.
Regardless of whether you’re outranked, your board will need legal advice to help clarify its position and guide you to a resolution.
How does the law protect your place on the board?
To protect your board position, you must:
- closely follow legal requirements
- make reasonable attempts to comply with directors’ duties
- follow relevant policies and the company constitution.
Importantly, while your backhand may get you to match point, you need to stop and consider whether it’s a good idea to retain your position on the board. Our legal advice will help you work it out.
When it comes to board issues, the most important thing you can do is demonstrate you’ve followed all legal requirements. You should also be able to show the board where it’s failing to follow the legalities. Keep documentation of all relevant discussions, and seek legal advice as soon as possible. The company will benefit – game, set and match.
If you suspect unfair play, we’re here to help. Put the ball in our court by giving us a call today.
DISCLAIMER: This article is intended to provide general information and should not be relied upon as legal advice. Formal legal advice should be sought if you are concerned about, or require particular advice applicable to your specific circumstances in relation to, any topics covered in this article.