August 22nd, 2023
Under company laws, directors have a duty to make decisions aimed at enhancing operational efficiencies and profitability. Indeed, the first task of every director is to comply with corporate governance policies, relevant applicable laws, and adherence to rules stipulated by regulatory bodies during the execution of their mandate. Ironically, the same law allows directors to be held liable for decisions deemed to be harmful to their company, employees, or shareholders. Section 194(2) of the Companies Act, 2015 expressly nullifies “a provision that purports to exempt a director of a company, to any extent, from any liability that would otherwise attach to the director in connection with any negligence, default, breach of duty or breach of trust in relation to the company.”
This leaves directors in an awkward position since they are recognized as the bona fide decision makers while at the same time left to fight their own battles when claims of unprofessional conduct are made against them. America’s Silicon Valley Bank (SVB), the largest commercial bank in Silicon Valley, was recently put under regulatory administration after failing to raise new money to cover its funding shortfalls that were occasioned by realized impairments on its bond portfolio holdings. This incident prompted a class action lawsuit being filed against SVB’s parent company, SVB Financial Group, and two of its top executives by the bank’s shareholders.