DIRECTORS DUTY OF SKILL & CARE IN CORPORATE GOVERNANCE

DIRECTORS ' DUTY OF SKILL AND CARE

IN

CORPORATE GOVERNANCE

TABLE OF CONTENTS

INTRODUCTION .4

Objectives .5

Overview .5

CHAPTER 1 CORPORATE GOVERNANCE .8

Corporate Governance in UK .9

1 .2 Corporate Governance in USA .11

CHAPTER 2 DIRECTORS .14

Types of Directors .14

Executive Directors .14

Non-Executive Directors .14

CEO and Chairman .15

Appointment of Directors .16

Dismissal of Directors .17

2 .5 Duty of Skill Care .18

CHAPTER 3 LITERATURE REVIEW .22

United Kingdom

.22

Codes .22

Companies Act .24

Directors ' Disqualification .26

European Union (EU ) Legislation .28

United States .29

COBIT .29

COSO .30

PCARIPA .32

Other Studies on Directors duties /Corporate Governance .34

3 .4 Summary .36

CHAPTER 4 DIRECTORS DILEMMA .37

Questions to be Addressed .38

4 .2 Summary .49

CHAPTER 5 PROPOSED NEW LEGISLATION .51

5 .1 General Duties of Care .51

General Comments .54

Enforcement .61

Summary .62

CHAPTER 6 CONCLUSION .63

REFERENCES .66

INTRODUCTION

The role of corporate directors is to manage and direct the activities of their companies , in addition to participating in the policy decision and implementation process . An intrinsic part of these duties involves the management of all the company 's property , which includes the investments of the company 's shareholders

As an inherent part of these roles , directors are required to exercise a duty of skill . Under UK law this duty of care is generally owed to shareholders . Although , under UK law , the duty of skill and care is owed to shareholders , more recently it has , as will be seen within this , been extended to all of the company 's stakeholders , both internally and externally During the past few years this duty and its execution has become one of the core issues of debate within the area of corporate governance . As a result of inconclusive guidelines and case law pertaining to the boundaries of director 's duties , the evolution of the scope of corporate governance has led to a high degree of ambiguity in terms of its relationship to the duty of directors , in particular when dealing with the legal definition of the term a reasonably diligent person ' In judicial situations , the individual judges interpretation and influence regarding this term has resulted in a lack of consistency of verdict

Increased corporate globalisation has exacerbated this situation . It has expanded the scope of corporate activity and , because of its geographical nature , affected the delegation structure of businesses , in relation to both management and responsibility . In addition , this corporate expansion brings the director 's role within the scrutiny of more than one national judicial system

All of these issues have left directors in a difficult , if not invidious position . Consequently , it was felt that the current criterion for determining and applying the term a reasonable diligent person required further analysis and study , particularly in respect of its relevance to current corporate operating realities

OBJECTIVES

The central aim of this study is to demonstrate that the current standard applicable to the interpretation of the terms a reasonable diligent person ' and...