Managing the Conflicting Duties of Nominee Directors

• Date: 01 March 2016
• Published date: 01 March 2016
• Author: David Gibbs
• DOI: http://doi.org/10.1002/bl.30039

ALSO IN THIS ISSUE

What Determines th e Conte nt

of Corp orate G overnanCe

CoDes? ................................. 4

fooD for thouGht .................. 5

neWs ..................................... 6

NUMBER 144, MAR.–APR. 2016

www.boardleadershipnewsletter.com

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Managing the Conflicting

Duties of Nominee Directors

by David Gibbs

If any of your board members are nominated or elected by others, you will be

interested in this article on the resulting potential for conicts of interest from

David Gibbs, Lecturer in Company and Commercial Law at the University of

Hertfordshire School of Law in the United Kingdom. He explores the implications

from the perspective of boards in the UK corporate sector, but the basic principles

and lessons are relevant for all.

BOARD LEADERSHIP

INNOVATIVE APPROACHES TO GOVERNANCE

View this newsletter online at wileyonlinelibrary.com

Board Leadership • DOI: 10.1002/bl • Mar.-Apr. 2016

A

board member or director is

normally appointed via the

mechanisms set out in the company’s

constitution. Their role is to act for

the company,1 which is incapable

of acting for itself. Therefore, first

and foremost, the directors’ duties

are owed to the company, which

is enshrined in statute under the

Companies Act 2006, section 170. A

problem arises when directors are

nominated for election to a particular

board to represent interests other

than the interests of the company.

This issue could commonly arise in

nonprofit companies where a particu-

lar organization, such as another com-

pany or public interest group, seeks

to nominate an individual to a compa-

ny’s board to protect their interests.

The director is then faced with a legal

dilemma where the interests of the

company differ from those who sup-

ported their appointment. This article

seeks to address this problem by

demonstrating how competing duties

can be managed to avoid any possible

legal consequences.

A director nominated by those

outside of the company, that is, other

than by the company or shareholders,

bears no difference on their status as

a director. The definition of a director

is encompassing to capture anyone

fulfilling the role by whatever name

called (Companies Act 2006, section

250). As such, the statute only refers

to “directors” generally. Therefore,

a director who is nominated to the

board owes the same duties as their

fellow directors under the Companies

Act 2006, sections 171–177. These

duties are owed to the company, but

under the law of obligations a direc-

tor might also owe duties to third par-

ties, such as to those who nominated

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EVENTS

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