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Director Duties in the UK

Applicable to all Director positions

Director Duties in the UK

Directors appointed to the Board form the central authority of FSB and in carrying out their functions owe a series of duties to FSB. The following duties are codified under the Companies Act 2006 sections 171 to 177.

Section 171 - Duty to act within powers

The first duty is to follow the company’s constitution and to exercise powers for the ‘‘proper purpose’’. An example of an improper purpose would be the plundering of FSB assets for personal enrichment – this would go beyond the reason for which the directors were delegated their power.

Section 172 – Duty to promote the success of the company

A director is required to act in the way they consider, in good faith, will be the most likely to promote the success of FSB for the benefit of the members as a whole. In doing so, regard must be given to the 6 factors below:

1. The likely consequences of any decision in the long term
2. The interests of FSB employees
3. The need to foster FSB’s business relationships with suppliers, customers/members and others
4. The impact of FSB operations on the community and the environment
5. The desirability of FSB maintaining a reputation for high standards of business conduct
6. The need to act fairly as between members of FSB 

At times the 6 factors may be in conflict but the directors should choose the action that will promote the success of FSB for the benefit of members as a whole, even if that may sometimes have a negative impact on one or more of the six factors.

Section 173 – Duty to exercise independent judgement

A director must exercise their judgement independently of the influence of others. This duty would not be infringed if the director is acting in;

a) Accordance with an agreement or previous collective board decision which had duly been entered into by the board; or
b) A way authorised by the FSB constitution

An example would be ensuring that a director does not allow personal interests, for example in a particular contract, to affect their independent judgement.

Section 174 – Duty to exercise reasonable care, skill and diligence

A director owes a duty to FSB to exercise the same standard of care, skill and diligence that would be exercised by a reasonably diligent person with;

a) The general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to FSB (an objective test); and
b) The general knowledge, skill and experience that the director has (a subjective test)

So if a director has specific skills or expertise they would be expected to exercise more active scrutiny than one without those specific skills or expertise.

Section 175 – Duty to avoid conflicts of interest

This section provides that a director must avoid a situation in which they have, or can have, a direct or indirect interest that conflicts, or may possibly conflict, with the interests of FSB. 

Section 176 – Duty not to accept benefits from third parties

A director must not exploit their position for personal benefit. E.g. if a director is currently involved in negotiating a new contract with another party and that party offers corporate hospitality, it may be considered to infringe this duty.

Section 177 – Duty to declare an interest in a proposed transaction or arrangement

This section requires a director to declare to the others any interest, whether direct or indirect, in a proposed transaction or arrangement with FSB. The extent of the interest must also be declared – the duty may still apply even if the director is not party to the transaction.