Collective duties of the board and individual duties of board members

One of the goals of the Crown Entities Act 2004 (CE Act) is to clarify the roles of board members and the responsible Minister. The Act does this by setting out the accountabilities of each party and in particular board members' duties and who those duties are owed to.

Board members hold positions of trust. Collective and individual responsibility and accountability are fundamental to the integrity of the board. It is important that board members are clear about, and understand, their collective and individual duties that come with appointment to a Crown entity board.

Board duties are often referred to as directors' 'fiduciary duties'. The board's collective duties and members' individual duties are set out in ss. 49-57 of the CE Act. The two types of duties vary with regard to:

• whether the duties are owed by the board as a whole, or by each member individually;
• who they are owed to; and
• what the sanction is if the duty is breached.

All board members are bound by collective and individual duties regardless of whether they are appointed or elected members.

Board members should be made aware of their duties immediately on appointment. Collective and individual duties should be comprehensively covered as a part of a board member's induction and covered again from time to time in ongoing training.

Board members' duties are constant and relevant to all actions undertaken by the board or individual members; a board and its members must always act in a manner consistent with these duties.

Collective duties

The collective duties of a Crown entity are the board's public duties which reflect that the board and the entity are part of the State services. The collective duties are owed to the responsible Minister (s. 58 CE Act). The collective duties of Crown entity boards, as set out in the CE Act, are to:

• act consistently with their objectives, functions, statements of intent and current statement of performance expectations (s. 49);
• perform their functions efficiently and effectively, and consistently with the spirit of service to the public, and in collaboration with other public entities where practicable (s. 50);
• operate in a financially responsible manner (s. 51); and
• ensure that the entity complies with sections 96 to 101 of the CE Act: ¹

Breach of duty

The responsible Minister needs to take appropriate action if the collective duties have been breached. If the board does not comply with any one of its collective duties, all or any of the board members may be removed from the board. However, a board member cannot be removed if the member did not know, and could not reasonably be expected to know that the duty was being or was to be breached, or if the board member took all reasonable steps in the circumstances to prevent the duty being breached.

The process for removal from office is different for each type of Crown entity and is set out in ss. 36 to 43 of the CE Act. A board member is not liable for breach of a collective duty other than to be removed from office (s. 58). A board member who is removed from office is not entitled to compensation or any other payment for loss of office (s. 43).

Individual duties of board members

The individual board member duties are a mix of common law duties and duties similar to the ones in the Companies Act 1993.  (Common law is law that is derived from judges' decisions.) The individual duties in the CE Act are owed to the entity and the responsible Minister (s. 59).  Board members' individual duties, as set out in the CE Act, are to:

• comply with the Crown Entities Act and the entity's own Act (s. 53);
• act with honesty and integrity (s. 54);
• act in good faith and not at the expense of entity's interests (s. 55);
• act with reasonable care, diligence and skill (s. 56); and
• not disclose information (s. 57).

Breach of duty

If a board member does not comply with any of his/her individual duties, the member may be removed from office and the Crown entity may bring a court action against the member for the breach of the duty (ss. 59 - 60 CE Act). The process for removal from office is dependent on the type of Crown entity. (See also Board appointments and reappointment).

Governance manual content: Collective duties of the board and individual duties of board members

At a minimum a good governance manual should cover:

• the collective duties and the role of the board and individual board members in ensuring the duties are complied with;
• the individual duties and the role of the board and individual board members in ensuring the duties are complied with; and
• a process for making sure all board members are aware of their collective and individual duties (eg, member induction, on going training, updating requirements) and of the consequences for breaching the duties.

1 Sections 96 to 101 of the CE Act relate to subsidiaries or where the entity has other interests, e.g. the acquisitions of shares or interests in companies, trusts, and partnerships.