Legally speaking the positions of chairmanship & membership of the board of directors of licensed banks as public joint stock companies got their burdens and liabilities. The appointees may rejoice for such appointments and big titles for social purposes. But, as a matter of law and fact, they are actually sitting on “hot chairs”, if we could say, according to the provisions of the company law.
Chairperson and other members of the Board of Directors of the licensed banks are advised to study the relevant commercial and business laws. However, the provisions of the commercial companies law give a clear view about the (heat) of such burdens and responsibilities. The below instances give us some examples, such as:
The chairman and all members of the board of directors shall be liable towards the bank as a company, the shareholders and third parties for all acts of fraud, abuse of authority, violation of the law or the articles of association issued by the company… Within this context, they shall also be liable for mismanagement that occurs due to all acts of negligence performed by them.
This legal liability clearly shows that everyone has the right to take legal action, on the occurrence of any of the above instances, against the chairman and all members of the board of directors. They are, as we can see, exposed to legal proceedings from within or without the company, i.e. their bank. In addition to this, they are questionable to the regulators & other competent authorities particularly the Central banks & The Securities Markets…
This indicates that the Chairman and other directors should perform their duties with utmost care and diligence and high standards of professionalism, failing which the company (as an institution) or any one of the shareholders or any other third party may take legal proceedings against them jointly or individually. Many shareholders as a matter of fact are not aware of this important legal right; this could be due to their ignorance, or carelessness….
The Chairman and other directors of the bank are jointly liable if the fault or negligent mistake occurs as a result of a resolution or resolutions passed and adopted unanimously by the Board. However, if the resolution has been adopted by majority only, the dissenting directors shall not be held liable provided that they have recorded their objections in the minutes of the meeting.
This shows the importance of reporting all necessary details in the minutes for record purposes. Directors who have dissenting opinions or views shall insist on entering and recording their dissenting views in the minutes, otherwise they share the responsibility with other directors regarding the outcome of that specific resolution.
Moreover, it is important to mention here, that the mere absence of a director, during the meeting wherein that specific resolution has been adopted will not automatically absolve that director from the liability unless he has proved that he was not aware of the resolution or that he was aware of it but was unable to show or explain his objection for any reason whatsoever. This point shows that the legal burden regarding resolutions of the board is following the director even during his absence at the time of that particular resolution.
We believe, this is very important because the intention of the legislature is to close the door for some directors who may prefer an “alibi” when they know that certain issues will be discussed and they don’t want to involve themselves. A director should have a say in all issues raised because he is responsible in all cases and mere absence will not bar him from the liability.
The general assembly of the shareholders shall specify who should take the legal proceedings, if any, on behalf of the company versus the chairman and other directors. In case the bank is in liquidation, the liquidator shall assume the powers of the shareholders and initiate the legal proceedings on behalf of the bank.
A shareholder, by himself may initiate such proceedings if he thinks the bank has failed to do so but he should prove the occurrence of particular damage to him as a shareholder, and such shareholder should take all necessary steps to notify the competent management of the company of his intention to initiate the legal proceedings.
An additional burden or misgiving (if we could say so) relates to the fact that neither the chairman nor members of the board of directors shall do or start any work / business that may cause any sort of competition to the bank. The conflict of interest rule shall be observed very carefully to streamline the concepts of corporate culture..
This is needed to deprive occurrence of all instances of malpractices, opportunism and importation. All brains and hands of all directors shall work towards one ultimate goal and direction, which is the interest of the bank and all shareholders. This attitude and goal shall always prevail over personal interests of the persons elected to serve the bank.
However, the general assembly of the shareholders may, in certain genuine circumstances, exempt a director from such limitation under certain conditions provided, however that this exemption shall not hamper or affect the interests of the other shareholders.
Based on the legal provisions enumerated above the Chairman and directors of each bank shall perform their legal and other relevant responsibilities with utmost care and due diligence, otherwise they could face some legal proceedings from the shareholders or any other interested third party. The directors are required to observe their legal and professional status all through their directorship otherwise they are supposed to retire and give the opportunity to other competent persons ready to serve the institution and the community..
The company laws enumerate in details all necessary provisions to govern the duties & responsibilities of the Chairman and directors, however, this is not the end as the Principles of Corporate Governance also add new principles to be followed and properly implemented…