Responsibility of Directors

Introduction

There are three main responsibility:

• Regulatory responsibilities
• Common Law responsibilities
• General responsibilities

Regulatory responsibilities

The FCA handbook, CREDS gives guidance on the following overall responsibilities of the Board of Directors:

• To establish objectives and formulate a business plan
• To monitor the financial position of the credit union
• To determine and document policies and procedures
• To direct and co-ordinate the work of all employees and volunteers, and ensure that they are capable and properly trained
• To maintain adequate reserves
• To make provisions for bad and doubtful debts
• To recommend a dividend on shares to members subject to the credit union’s financial position
• To ensure that the credit union complies with all statutory and regulatory requirements
• To ensure that the credit union complies with the requirements of its registered rules

Common Law responsibilities

Due Diligence

It is your responsibility as an individual to take steps before undertaking your role, to ensure you are able to commit to the time and responsibilities it entails. Are you in a position to contribute effectively? Do you have sufficient time to dedicate to the role? You must be in a position to satisfy yourself and others that you were aware of the size and responsibility of the task before embarking on the role of director. You are also obliged to ensure that the credit union is a sound and effective organisation.

Fiduciary Duty

Fiduciary means “good faith”; fiduciary duty means that everything done by a Director must be done in good faith “bona fide for the benefit of the organisation as a whole and for a proper purpose”. Therefore, when making decisions the Directors must:

• act in the best interests of the organisation as a whole and all its members;
• have regard to the interests of the company’s employees;
• not misuse the organisation’s property;
• not misuse information for personal gain even after they have left the governing body; and
• not allow the directors’ personal interests or the interests of any other body to override that of the credit union.

Fiduciary duty is a duty to the organisation as a whole.  Directors must not place the interests of any individual members, employees, beneficiaries, or any group, above the interests of the credit union.

Conflict of interest

A conflict of interest exists when a credit union director has a financial interest in, or stands to gain financially from, any contract, transaction or other agreement entered into by the credit union. “Financial interest” and “financial gain” apply not only to money, but to anything with monetary value. Directors must be aware of potential gains that might arise directly or indirectly; for example, by the purchase of goods or services by the credit union from a fellow Director; or indirectly, if purchased from a partnership, in which the Director is a partner, or from a company in which the credit union member owns shares and therefore, stands to gain from the company’s profits.

If the credit union director has a conflict of interest this must be declared to the Board at the time the contract or agreement is discussed. The Director should not take part in a decision on any matter in which there is a conflict of interest.

Duty of Care

As well as their duty to act in good faith, credit union directors have a duty of care. This means you must act responsibly and carefully regarding the credit union. If you fail to do so you may be considered “negligent, and may face civil claims or be prosecuted under criminal law.” Adirondack & Taylor, (1996).

The legal standard required to avoid negligence is to use the care that a reasonable person exercising sound judgement would take in a set of similar circumstances. If a reasonable person exercising sound judgement would have acted as they did, they have not breached their duty of care. They are expected to use the skills and experience that they have. A Director should act carefully and deliberately, and examine possible consequences of a particular course of action. If as a Director you act with care and in the scope of your powers, you will not be liable for errors in judgement.

If a decision is made haphazardly and proves disastrous for the credit union, you as Director may be held liable if it can be said that you acted in a manner which was below the standard that could reasonably be expected of a Director.

The law does not require Directors to be considered as professionals with special skills. Their conduct is not expected to conform to a higher standard than may be expected of a reasonably prudent person in comparable circumstances. However, if a Director does possess a special degree of skill or knowledge, e.g. is an accountant, estate agent or lawyer, then a higher standard will be imposed, at least with respect to matters falling within that Director’s area of expertise.

In order to demonstrate that you are exercising a duty of care your need to be kept informed.  You are required to make enquiries into the operation of the credit union that a reasonable person in that position would make.

In fulfilling your duties of care as a Director, you may assume certain rights surrounding the operation of the credit union. Specifically, you have the right to expect the following:

• To have reasonable communication with the general manager. This includes the right to question the general manager in an appropriate manner.
• To be able to inspect records in the context of fulfilling your responsibilities.
• To receive notice of meetings.
• To receive minutes from meetings in advance of the next meeting.
• To be provided with timely and accurate reports from officers or employees of the credit union and from people who are hired professionally, such as lawyers and accountants.

You should carefully examine all reports, however, and if you are suspicious or know the information is not reliable, notify the Board and make further enquiries. This is the only way to protect both yourself and the Board.

Whistleblowing

This refers to the Public Interest Disclosure Act 1998, and is designed to enable workers to highlight concerns which are in the public interest, and relate to the functions of the FCA in their capacity as a consumer protection body. People are encouraged to blow the whistle internally initially, to try and obtain a change of policy or procedure, which they feel is wrong. It is, however, recognised that some may not be in a position to do this and so the ability to be able to report such matters directly to the FCA will greatly assist such people. The FCA is a ‘prescribed person’ under the act, and anyone using the ‘whistleblowing’ facility will have protection under the act, including against unfair dismissal or victimisation by the employer. The type of disclosures that are covered relate to a business, such as a credit union, committing the following acts:

• A criminal offence.
• The breach of a legal obligation.
• Damage to the environment.
• Deliberate concealment of information or evidence of any of the above.

This facility can have an obvious application for a credit union Director, who may feel that they are being placed in breach of their responsibilities because others will not act correctly. An example, (perhaps extreme) could be the constant and wilful disregard of the need for compliance with regulatory requirements. If the individual had brought the matter up several times at Board meetings and had their views entered in the minutes, but not acted upon, the last resort may well be to use whistleblowing as a means of attracting attention to the matter.

General responsibilities

More general responsibilities of Directors include:

• Participating in Board planning sessions
• Participating in informed decision making
• Abiding by the concept of collective responsibility
• Promoting the mission, vision, aims and objectives for the credit union
• Acting as the representative of members
• Assisting and supporting others to carry out policy
• Electing a Board chairperson and officers
• Develop a working relationship with senior managers
• Assessing financial structure and budgets
• Developing your personal skills
• Abiding by the code of conduct and social goals of the credit union
• Maintaining confidentiality