The moment you become a board director you become a Fiduciary and take on a host of legal obligations, duties and liabilities.
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties.
The legal system recognizes a multitude of special relationships in which one party (e.g. individual, group, board) is required to look after the best interests of the other in an exemplary manner. These relationships are called fiduciary relationships. Fiduciary relationships entail trust and confidence and require that fiduciaries act honestly, in good faith, and strictly in the best interests of the beneficiaries of such relationships.
The courts have developed a basic test for determining whether fiduciary obligations arise from a relationship: first, the fiduciary has the ability to exercise some discretion or power; second, the fiduciary can unilaterally exercise that power so as to affect the interests of the beneficiary; third, the beneficiary is in a position of vulnerability at the hands of the fiduciary.
It’s vitally important that all board directors understand their duties with respect to being a Fiduciary. Not understanding fiduciary duties— or not being well-informed about them — doesn’t relieve board directors from any obligations or liabilities they may face if they fail to fulfill these important duties.
The Societies Act of British Columbia specifies the duties of a director as following:
“53 (1) A director of a society must, when exercising the powers and performing the functions of a director of the society,
(a) act honestly and in good faith with a view to the best interests of the society,
(b) exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances,
(c) act in accordance with this Act and the regulations, and
(d) subject to paragraphs (a) to (c), act in accordance with the bylaws of the society.
(2) Without limiting subsection (1), a director of a society, when exercising the powers and performing the functions of a director of the society, must act with a view to the purposes of the society.
(3) This section is in addition to, and not in derogation of, any enactment or rule of law or equity relating to the duties or liabilities of directors of a society.
(4) Nothing in a contract or the bylaws of a society relieves a director from:
(a) the duty to act in accordance with this Act and the regulations, or
(b) liability that, by any enactment or rule of law or equity, would otherwise attach to the director in respect of negligence, default, breach of duty or breach of trust of which the director may be guilty in relation to the society.”
Many of you have been asked to join boards and become a director. It’s a wonderful thing to do, but remember, a board director has responsibilities to uphold. Make sure you understand those responsibilities.
Article contributed by Vince Battistelli.