Ceo Limitations

INTRODUCTION

Under the new Companies Act, the Director has a duty to:-

(a) act honestly and in good faith with a view to the best interests of the Company, Shareholders and employees in general; and

(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

ISSUE A

Relevant legal principles and provisions

A Director has a general duty not to enter into engagements in which he has, or can have, a personal interest conflicting, or which may possibly conflict, with the interests of those whom he is bound to protect.

A director owes a duty of fidelity to his company. One of the facets of the fiduciary duty is not to compete or to assist another to compete with the company and a further facet is not to use confidential information obtained as a director or employee otherwise than for the purposes of furthering the company's interests.

From the facts, it is apparent that the CEO is a Director of two companies, one of which is a company offering services directly competing with Millennium. There are conflicting views as regards competing directorships. One view allows a company director the freedom, in the absence of contrary contractual obligations, to hold a directorship in a competing company. This view, however, is difficult to reconcile with a director’s fiduciary obligation and an opposing perspective has emerged where a director who remains an active participant in the affairs of competing companies is in breach of his fiduciary duty.

Although the holding of multiple directorships may be regarded as prima facie legitimate, it cannot be disputed that it would be highly unusual for a director acting with bona fides to be involved with companies competing directly with each other. Notwithstanding London and Mashonaland, it is firmly established that directors will be liable for certain acts arising as a consequence of their competing directorships, for example, the director will...