Question

Discuss whether you think Directors can properly decide to pay themselves from corporate funds while still fulfilling their fiduciary duty to the corporation.  

Answer 1

Directors have fiduciary duties and obligations while being associated with a corporation. There are circumstances when they can be held accountable for failing to fulfill these responsibilities. If a director breaches his fiduciary obligation, he may be personally held responsible for any loss resulting to the corporation.

Therefore directors should exercise their rights in good faith while dealing with corporations business & dealings. One of the important fiduciary duty is that a director should not divert or misappropriate corporate funds and assets. They are expected to report all material facts related to corporate transactions with full accuracy to shareholders. A director is generally not permitted to benefit financially because of his position without disclosing it to other directors & he should reveal any conflict of interest between corporation’s business and his own personal interests that may arise.

Directors are entitled to pay if they have contractual right to payment. As per a company’s policy & laws they have power to award service contracts. In my opinion board should set a nominations & remunerations committee comprising of a subset of the board directors. This will help in keeping transparency & ensure fairness while deciding salaries & remunerations. Though now a days independent board members who are not company employees are not compensated like employees with salaries. Instead they are paid stipends or compensated on per meeting basis or assignment including expenses which is determined by a select committee on compensation.

According to me directors can decide to pay themselves while still fulfilling their fiduciary duty to corporation if they are diligent and careful while performing duties as a director, and exercise good faith in dealing with the corporation’s business. They should disclose any conflict of interest to shareholders & to the other members of board & get approval for their actions.