Accountability of company directors

TDT | Manama

Email: mail@newsofbahrain.com

Legally speaking the positions of chairmanship & membership of the board of directors in public joint stock companies got their burdens and liabilities, likewise, their credits and advantages. This legal burden and liability is clearly coming from the fact that everyone has the right to take legal action, against all members of the board. They are, as we can see, exposed to legal proceedings from within or without the company and, as a fact, this is happening every now and then.

This indicates that the Chairman and directors should perform their duties with utmost care and due diligence, honesty and high standards of professionalism, failing which the company or the shareholders or any other third party may take proceedings against them jointly or individually.

They are jointly liable if the fault or negligent mistake occurs as a result of resolution(s) passed and adopted unanimously. However, if a resolution has been adopted by majority only, the dissenting directors shall not be held liable provided that they have recorded their objections in the minutes, as a sort of dissenting opnion. Moreover, it is important to mention, that mere absence of a director during the meeting will not automatically absolve him her from the liability unless he she can prove that he she was not aware of the resolution or that he she was aware of it but was unable to show his her objection.

We believe, this is very important because the intention of the legislature is to close the door for some directors who may prefer an “alibi” when they know that certain issues will be discussed and they don’t want to involve themselves for any reason whatsoever.

The general assembly of the company shall specify who should take the legal proceedings, if any, on behalf of the company versus the chairman and directors of the Board. A shareholder, may initiate such proceedings if he she can clearly prove the occurrence of particular damage to him her and all necessary steps shall be taken to notify the management of the company of his her intention to initiate legal proceedings.

An additional burden, relates to the fact that neither the chairman nor members of the board shall do or start any work that may cause any competition to the company. The conflict-of-interest rule shall be observed very carefully to streamline the concepts of corporate culture and corporate governance. This is needed to deprive occurrence of all instances of malpractices, opportunism and importation or even criminal breach of trust.

It is important to say that, above directives are almost included in all company laws corporate governance rules in all Gulf Countries, however, they are also international concepts.

All at the top helm of the company, or in the process of being so, including all Board directorship, are genuinely advised to carefully take above issues in consideration, if interested to be a useful dynamic part of any board of directors of a joint stock company. It is a one-way route, to reach the destination anticipated by the company and its shareholders.

(Captain Mahmood Al Mahmood is the Editor-in-Chief of The Daily Tribune and the President of the Arab-African Unity Organisation for Relief, Human Rights and Counterterrorism)

(The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Daily Tribune)