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The counterbalance to this concern is S175 Companies Act 2006 (CA 2006) this acts to prevent certain conflicts arising and punishes directors who find themselves in this position.
Director is an important position and authority within the monarchy of company because companies can be held responsible hence is prone to legal actions for the acts which a director does to manage the business and other affairs of the company.
S 250 provides a set of rules for number of directors of a company, their authority etc, it illustrates the person using the authority of a director would be considered as a director whether he was a nominated or de facto under CA 2006 he is termed as "director" .
obligations narrated in this provision obligates require to act fairly between the members of the company and take into the consideration the impact of the company’s operation on the community and environment which is generally called Corporate Social Responsibility.
Director is also obligated by this provision to take care of the reputation of the company and its standards CA 2006 not only brought a significant change in the common law concept of maximising the benefit and getting most out of the business and moved the concept in the direction of community and environment but also introduced the value of shareholders.
This common law fiduciary obligation is now embodied in statute; S 172(1) of CA 2006 requiring the actions of a director for promoting company’s success and benefit of its members.
The section also makes it compulsory for a director to act in good faith, behaving in a way which in thinks is compulsory for both success of the company and interest of its members.Apparently s 172 seems ditto copy of common law and equitable principle which states that; Obligations of directors regarding issues and functions of the company are provide in Chapter 2 part 10 of CA 2006.S 172(1) of CA 2006 is significant in this regard; a director is responsible for the success of the company and obliged that the actions of a director must be in a way he thinks are fundamental for the success of the company however he must proceeds in good faith.As a consequence of the separate legal entity and limited liability doctrines within the UK’s unitary based system, company law had to develop responses to the ‘agency costs’ that arose.The central response is directors’ duties; these are owed by the directors to the company and operate as a counterbalance to the vast scope of powers given to the board.By applying subjective interpretation and objective test of section 172 of CA 2006 essay will examine the probable authority and capacity of this section to influence the corporate governance.As an argument, under the circumstances of conflicting interests of a director with the company being the violation of act in good faith is also the violation of these provisions itself; acceptance of benefits from a third party also falls in the violation of the CA2006 hence in presence of such conflict of interest it cannot be argued that director acted in good faith for the interest of the company and its members.The legal side of directors’ remuneration appears to be sufficient with the directors’ duties legislation acting as an efficient preventative measure for the problems that directors’ remuneration creates.Furthermore, shareholders already must approve several payments as such this could be strengthened to tackle the issue and employees are to some extent taken care of within s172 as such it is these sections that need development rather than directors’ remuneration.The benefit of the unitary board system is reflected in the efficiency gains it brings, however the disadvantage is clear, the directors may act to further their own interests to the detriment of the company.It is evident within executive remuneration that directors are placed in a stark conflict of interest position in that they may disproportionately reward themselves.