For example, a director could be honest and yet lazy and incompetent, and thereby endanger the interests of shareholders. Directors have the duty to exercise reasonable diligence to ensure that the company is properly run.
This article illustrates my point. Understand now, Boon?
ST May 17, 2007
Two ex-NKF directors fined $5,000 each for failing in their duties
By Chong Chee Kin
RICHARD Yong and Loo Say San yesterday became the first of the former National Kidney Foundation (NKF) board members to be convicted on criminal charges, though both men avoided jail terms.
After a trial lasting 13 days, Yong, 65, and Loo, 58, were each fined the maximum $5,000 after a district court found them guilty of failing in their duties while they were directors of the charity.
They could have been jailed for up to one year.
Yong and Loo were charged in March with causing the charity to make excessive payments to software company Forte Systems Inc over a botched and incomplete project for the charity.
Yesterday, a district court found the two men failed to exercise due diligence over the deal.
Yong was NKF chairman at the time, while Loo was the treasurer.
The case centred on a deal between NKF and Forte - a company owned by Mr Pharis Aboobacker, a close friend of former NKF CEO T.T. Durai - to upgrade the charity's computer system.
Forte failed to deliver the software, but still demanded $2.6 million in payment.
Yong and Loo made a counter-proposal and paid the company $1.3 million.
Ruling that both men had been negligent, District Judge Jasvender Kaur spelt out clearly what was expected of company directors:
'Directors must not only act honestly, but also exercise reasonable diligence ... directors also have a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's affairs to enable them properly to discharge their duties as directors...'
She added: 'In this day and age, the demands made of directors are more exacting and the community has come to expect more from them.'