Single-Minded Loyalty to the Company

What do the likes of Philippine conglomerates SM Group, Ayala Corp. and Alliance Global have in common with their Indonesian (Salim Group), Singaporean (Singapore Telecoms) and Thai counterparts (CP Group)?
 
They have extremely talented professionals and board members singularly focused in pursuing growth in their respective industries and still keen observers of their director’s fiduciary duty completely.
 
The title of this article perfectly defines what a fiduciary duty means from a Board of Directors (BOD) level perspective. The word was drawn from the Latin term fiduciarius or fiducia meaning confidence and trust. In the pecking order of things, the fiduciary duties of a director rank highest in any governance initiated event regardless whether the enterprise is a closed or a publicly listed corporation.
 
What then is the role and responsibilities of a director? This is a serious and important question directed to warring family members who are wondering why the business is in a state of suspended animation due to infighting, distrust and betrayal amongst siblings (and cousins).
 
My answer is straightforward, as a family member-director, understanding your responsibilities should always be your first task. And your primary role is to “ensure the company’s prosperity, steer the organization’s future by adopting sound, ethical, legal governance and financial management policies with the objective of enhancing long term stockholder value.”
 
The cause of all these senseless disagreement is due to the “culture of control and secrecy where the family tries to do it all.” totally ignoring corporate rules related to governance. In many instances where the dysfunctional family continues to cast an overarching shadow over the business, directors will never be effective and the BOD will end up being relegated as a “paper board.”
 
What are the qualities that a director must possess for him or her to be appointed or elected to the board?
  • Competence
  • Professional Experience
  • Network
  • Integrity
But over and above these qualities, the director must also embrace a decision-making mindset focused on his or her single minded loyalty to the company. These decision-making parameters should never be confused with the director’s relationship with other shareholders and fellow directors. Not even if the director and shareholder is one and the same.
 
Directors must understand that a company is a different entity. Some of its powers may be exercised by the BOD, while certain other powers may be reserved for the shareholders like the Annual Stockholders Meeting (ASM). In general, if the policy and directional making powers of management are vested on the directors, then they and they alone can exercise these powers.
 
What then comprises the fiduciary duties of a director? Culling from my SID SMU directorship notes (Singapore Institute of Directorships-Singapore Management University), these are the:
  • Duty to act honestly
  • Duty to act in good faith
  • Duty to exercise reasonable diligence
  • Duty to exercise care, skill & diligence and
  • No Conflict of interest and
  • No Personal gain
In my years of family business coaching and resolving conflicts, the most common problem affecting companies is always about conflict of interest (COI). The fundamental question that needs to be resolved is: Can family members (and in laws) do business with the business? Let us start with common COI cases:
 
You are the CEO, director and shareholder of a company and the board has authorized you to source for a contractor to construct plants in different locations. With this information, you immediately commissioned your wife’s family, who are in the contracting business, as general contractor. Your argument is that in laws can be trusted. Does this constitute COI?
 
To be continued…
 
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