Duties of directors under Bermuda law

In the intricate world of corporate governance, directors hold a position of immense responsibility and influence. Their primary role is to ensure that the company's management activities align with its strategic goals while maintaining an acceptable level of risk. This task is not only pivotal for the company's success but also for its integrity and compliance with regulatory standards.

In this article, we discuss the essential duties of directors and how they help in steering corporate success.

What is the role of a director?

Directors are responsible for reviewing and monitoring managerial performance against corporate strategy at an acceptable level of risk.  They must ensure that the business is effectively directed and managed, and conducted with integrity, due care, and the professional skills that are appropriate. A board should have an appropriate number and mix of directors to ensure that there is an appropriate level of experience, knowledge, skills and expertise commensurate with the nature, scale and complexity of the company’s proposed business, especially if the company’s business is itself subject to a restricted, licensed or regulated regime.  

To meet a company’s goals while remaining compliant with its obligations, both the appointment of appropriate directors to the company’s board and an understanding by those directors of their legal, statutory and fiduciary duties are vital components to good corporate governance. 

What are the fiduciary duties of directors?

Directors of a company shoulder significant responsibilities, central to which are their fiduciary duties. These duties are crucial for maintaining the trust and integrity of the corporation, ensuring that every decision aligns with the company's best interests rather than personal gains. Both executive directors, who are involved in day-to-day management, and independent non-executive directors, who provide oversight without direct involvement, are bound by these obligations. 

Key fiduciary duties include a duty to: 

1. Act in Good Faith: Directors must make decisions that they believe to be in the best interests of the company. This means prioritizing the company’s welfare over personal interests or the interests of any other party, including shareholders.
2. Exercise Powers for Proper Purposes: Directors should use their powers only for legitimate business purposes. This involves advancing the company's interests, which may not always align with the interests of individual shareholders or other stakeholders.
3. Avoid Conflicts of Interest: It is vital for directors to steer clear of situations where their personal interests could conflict with their duties. This transparency is key to maintaining trust and accountability.
4. Refrain from Personal Profit: Directors must not exploit opportunities that arise through their position for personal gain. Even if the actions are honest and intended to benefit the company, personal profit from such opportunities is considered unethical.

What are the three pillars of directorial care in corporate governance?

In the complex landscape of corporate governance, directors are expected to exercise their skills with reasonable care, a duty that is essential for maintaining the health and integrity of the organisation. This duty has three aspects: 

• Degree of skill – Directors are not expected to be experts in all areas of the business, but they are required to apply the knowledge and experience they do possess. 
• Attention to the business – Directors should attend to the affairs of a company diligently. Unless they are an executive director, this does not mean devoting all their time and attention to the management of the company or be an expert in its field of business, but in performing their duties, they must display such reasonable care that an ordinary man may be expected to take in the same circumstances. 
• Reliance on others – Directors are not liable for the acts of co-directors or company officers solely by virtue of being a director. They can rely in good faith on executives who have been specifically appointed for the purpose of attending to the detail of management. However, directors cannot absolve themselves entirely of their responsibility by delegation to others. 

These duties are similarly expected of alternate directors even if their appointment is for the purpose of a single meeting, or shadow directors (a person in accordance with whose directions or instructions the directors of a company are accustomed to act, regardless of title). 

How can Ocorian help?

Our experienced lawyers based in Bermuda can assist with governance and policy reviews, Bermuda legal advice, board evaluations, and board effectiveness reviews for insurance and non-insurance companies. Our teams based in Bermuda can provide a full suite of administration, fiduciary, and legal services, including board support and company secretarial services across all industries.