Singapore's Companies Act Section 157 raises a difficult question: where should we draw the line between director accountability and encouraging directors to take responsible business risks?
Singapore directors should understand something important: diligence is not merely a matter of good practice. It is a legal duty.
Under s157(1) of the Companies Act, a director must act honestly and use reasonable diligence in discharging the duties of office. A breach can also constitute a criminal offence under s157(3).
You don't necessarily have to steal money, commit fraud or personally benefit. A failure to exercise the reasonable diligence required of a director can itself expose you to criminal liability.
Nor does criminal liability under s157 necessarily depend on first establishing financial loss to shareholders.
This makes Singapore noteworthy when compared with jurisdictions such as the UK and New Zealand, where breach of the general statutory duty of reasonable care, skill and diligence is principally treated through civil director-duty regimes rather than being, by itself, an equivalent general criminal offence.
This raises an important governance question: Does criminalising a lack of reasonable diligence make directors more diligent, or more defensive?
One possible concern with criminalising a lack of reasonable diligence is that it may encourage overly defensive director behaviour, particularly when a company enters distress. Directors may become more concerned about personal exposure at precisely the time the company most needs experienced directors to remain engaged.
We certainly want directors who take their responsibilities seriously. But we also want capable directors who are prepared to make difficult decisions, take appropriate business risks and remain engaged when companies encounter trouble.
Good governance needs accountability, but it also needs directors with the courage to govern.
Comments
Post a Comment