COVID-19: Directors duties and liabilities

COVID-19: Directors duties and liabilities

In an increasingly globalized world, multinational groups have subsidiaries registered in jurisdictions where the regulatory burden can be substantial. Extensive compliance requirements, the potential penalties associated with non-compliance and the difficulties in performing these requirements in light of COVID-19 place a significant amount of fiduciary responsibility on individuals who are appointed as Directors.

With a growing trend for Directors to take on multiple directorships across different jurisdictions in their group, there is an increased burden and complexity to understanding what is required of them in each position. Developing understanding and keeping up-to-date with extensive duties and liabilities across the world can be  time-consuming and confusing.

The Director’s role

Directors are obligated to ensure that they are acting in the best interests of the company and fulfil their duties accordingly, both from a fiscal and managerial perspective. It is generally expected that directors will possess some degree of financial literacy, promote the values of the company and maintain its reputation.  In some jurisdictions, for instance Germany, this may mean contradicting instructions from the shareholders that could potentially expose the company to illegal activity. 

Public, social and economic expectations are continuously evolving into laws and regulations which impact the responsibilities to Directors who need to be seen to be acting responsibly. Recent examples include modern slavery, environmental regulations,  data protection, sexual harassment practices and market abuse.  In Australia, breaching environmental protection laws can result in directors being personally liable for the company’s offences and they are expected to actively consider the impact of climate change on business operations.

In addition to this, regulations in industries such as financial services and insurance services are continuously developing and driving greater accountability for directors. For example, in the UK where directors and senior managers are required to attest to a personal statement of responsibility.

Solutions to achieve clarity

Considering the diverse range of responsibilities entrusted to Directors, it is essential that corporations take the necessary actions to ensure that they are adequately supported. Violation of these duties can result in serious consequences, including criminal liability, so it is equally important that individuals take precautions to mitigate the personal risks involved.

Corporations need to ensure they are equipping their directors with appropriate support to help them navigate these risks. Investing in training programs for current and prospective appointees are absolutely key to equip directors with the practical knowledge required to effectively fulfil their duties. Training must be effective and appropriate to the audience considering whether e-learning, written manuals, webinars or a mixture need to be on offer. While it’s imperative that records are kept and director’s involvement in any training programs are mandatory and monitored, companies must also consider timing of programs being rolled out to ensure new directors receive training as part of on-boarding and existing directors are receiving regular update on new regulations.

The onus on directors to ensure they are acting appropriately across multiple areas of regulation will only continue to grow as the public demand accountability for corporations. This is high on everyone’s agenda and Directors are rightly taking their responsibilities and liabilities seriously. Corporations need to be supportive of their Directors and take action to give their Directors the right tools to carry out their roles successfully.                          

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