Collective decision but Individual liability

Directors are the mind, heart, and soul of an enterprise. They are the Lords of the boardroom and the entity’s sustainability is in their hands. Together, directors form a board, and collectively make decisions on behalf of an incapacitated juristic person (corporation). A board of directors will not always find themselves in agreement and it is often the case that through frank and thorough dialogue that directors can agree upon what action to take, although it is not unusual for one or more directors to remain opposed to a decision that the rest of the directors' support.     

This article explores the legal rights and responsibilities of a dissenting director in practical terms;

It goes without saying that board directors should perform on their fiduciary duty through board discussions and debates. As a Common law practice, a company director has a fiduciary duty to act; in good faith and for a proper purpose, in the best interest of the company and with the degree of care, skill and diligence that may reasonably be expected of a person carrying out the same function about the company as carried out by that of the director, and having general knowledge, skill and experience of that director. To discharge their role efficiently and to prevent liability, a director needs to familiarize him/herself with fiduciary duty as well as other responsibilities associated with the role of the director's post. 

Generally, a governing body takes decisions collectively as a board and not as an individual. Probably, this is where the fallacy emanated, that as it may; directors individually should perform their fiduciary as an individual. A governing body cannot owe a fiduciary duty to an organization because it lacks legal capacity; this was validated by the court in a better known AVID case. This is to say that directors can be personally held liable for breaching the fiduciary duty that they each owe to a corporate.  Group thinking should be avoided at all cost and it is the chief weakness on many boards today; directors should think independently and only accede to decisions upon exercising due diligent and professional care.

Nobody likes to be different or unpopular, but board directors are supposed to set that aside in the service of protecting the best interest of the shareholders and the company.  Any director may dissent by expressing an opinion at variance with those commonly or officially held. By its very nature, this has a negative connotation and represents an element of serious disagreement. In the best of situations, dissenting opinions should be expected and accepted and the dissenting board directors should feel free to air their opinions respectfully and give supporting reasons.

In board rooms, a dissent by a director can be a double-edged sword, one side used as a deterrent to prevent a potential misadventure and the other as a diabolical obstructionist mechanism that can reject even genuine proposals. When a board director disagrees with the consensus; there should be an acceptable process to the effect. It is however interesting to note that, a mere abstaining from voting does not constitute dissent, hence a proper process should be complete. Well-kept corporate minutes and directors` resolutions serve as a record of corporate decisions and reflect directors` dissent where appropriate.

Dissenting can be part of a checks and balances in such a way that; it pushes directors to state their misgivings with the hope that their dissent will guide their corporation toward better business practices, avoid damaging third parties, and most importantly it reduces the number of lawsuits. So, individual directors should utilize dissenting in the best practical way because it keeps the dissenting director out of being liable for any legal problems arising from the vote. 

On the other hand, dissention may cause a rethink of a questionable action by other directors, and above all; shareholders who examine the voting record may notice a potential problem, thus directors must stay abreast of the board's activities and should be prepared to dissent to actions that may implicate them personally.

By:

Onesmus K Joseph - MBA, ACIS, BAP, CFIP, PPL

MPHIL Candidate - KNUST (Kumasi; Ghana) 

Governance Professional

josephonesmus@yahoo.com