That a director should exercise reasonable care, skill and diligence seems like a statement of the obvious. However, what does “reasonable” mean in this context?
The title of this blog comes from the US presidential oath of office where those individuals are required to preserve, protect and defend the Constitution of the United States to the best of their ability. While the word “best” does not appear in section 174 of the Companies Act 2006, as a director, you should “preserve, protect, defend” your company – however, there is no inauguration ball for you!
The “reasonable” test for this duty is an objective test – the knowledge, skill and care reasonably expected of a person in the director’s position.
But that is not the end of it – this “reasonable” standard is potentially increased by a subjective element if the particular director has specialist knowledge. For example, if you appoint a director who has a financial background, those skills may be taken into account in respect of financial matters and the director may be expected to meet a higher standard.
As I have explained in another blog, a director has the duty to exercise independent judgement. This links into the need to exercise reasonable care as a director needs to know their limits. The director needs to make sure that they obtain appropriate advice to allow them to exercise independent judgement and satisfy the duty of reasonable care, skill and diligence.
A crucial point to make here is that becoming a director is not a role to be taken on lightly – it is more than a title. It is one that could lead to trouble if you ignore your obligations or treat them dismissively.
If you are a director and have any questions regarding director duties or responsibilities, please call Steven Wicks on 01383 745799 (or by email on firstname.lastname@example.org) or one of the other members of our experienced corporate team:
Alan D Stalker WS
email@example.com 01383 745789
firstname.lastname@example.org 01383 745782