The role of a director has become even more challenging in today's difficult business environment. Boards today are attempting to navigate their respective companies through stormy waters brought about by unstable financial markets, executive compensation scandals, low consumer confidence, rising unemployment and a range of other complexities.

Indeed, directors themselves are now under constant scrutiny by both their companies' shareholders and the media, as the need for practical and effective leadership is ever more paramount. That makes election to the Board of a company a double-edged sword; with a director's powers come responsibilities, as recent high-profile litigation in the United States has demonstrated.

In Bermuda, there is no distinction between executive and non-executive directors. In all cases, directors of a Bermuda company are agents responsible for managing the company's affairs and exercising its powers.

Directors are only personally liable if they act beyond the scope of their authority, the limits of which are determined by the company's memorandum of association and bye-laws (the "Constitutional Documents"). Those documents may differ from company to company provided that they are prepared in accordance with the Companies Act 1981 ("the Act").

Directors should familiarise themselves with the Act, which deals with areas on which the Constitutional Documents are often silent and also sets out the obligations of the company that the directors, as its agents, must ensure are fulfilled.

A director's duties are owed to the company and not to any individual shareholder.

In an insolvency situation, however, directors must consider the interests of the company's creditors as well as its shareholders.

A director's duties under common law are divided into two main categories: the duty of skill and care, and the fiduciary duty.

The duty of skill and care is both subjective and objective. A director is not required to show any greater skill than a person of his knowledge and experience may reasonably be expected to have. He is, however, expected to act with the care that a reasonably prudent person would exercise in comparable circumstances.

A director may rely on suitably qualified and experienced subordinates appointed to manage the company, but cannot absolve himself entirely of his duties of skill and care by delegation to others.

A fiduciary is someone who has undertaken to act on behalf of another in circumstances that give rise to a relationship of trust and confidence. A director's fiduciary duties include loyalty, acting in good faith, exercising powers for a proper purpose, avoiding conflicts of interest, and not using the position for personal gain.

This last duty applies even if the director is acting honestly and for the good of the company unless the Constitutional Documents expressly permit it.

The Walt Disney Company case is a recent US example of directors being found in breach of their fiduciary duties. The Delaware Court held that directors had effectively "rubber stamped" the CEO's decision in hiring and then terminating the employment of a new President. They did so without carefully considering the details of the proposed compensation and termination packages and the effects thereof on the company. The Court also ruled that a director must act in a fair and impartial manner with a view to the best interests of the company even when negotiating his own termination package and cannot provide himself with an advantage at the company's expense. Delaware and Bermuda law are comparable in this respect.

Common law fiduciary duties are reinforced by the Act, which requires a director to disclose, at the first opportunity, at a meeting of the directors or by writing to the other directors, any potential conflict of interest with the company or any subsidiary. Non-disclosure will expose the director to personal liability. Any contract entered into by the company in such circumstances may be voidable at the company's option and any profit recoverable by the company.

The Act also imposes various duties and responsibilities on directors with regard to the operation of a company, including the keeping of minutes of meetings and books of account. The latter is particularly important since directors are required to monitor the company's financial position in order to determine whether the company is able to pay its debts as they fall due and whether the business is still viable.

Directors are liable to imprisonment if convicted on charges of falsifying books or records and in connection with actions intended to defraud creditors of the company.

While there appears to be considerably less litigation involving directors of Bermuda companies when compared to US companies, one senses, in today's difficult market conditions, that shareholders and courts will continue to lean on Boards to be more responsible in all areas of business management.

A director will not be liable if he relies in good faith upon financial statements presented to him by another officer (including a fellow director) of the company or a report of an attorney, accountant or other person whose profession lends credibility to a statement made by him.

Finally, directors, or potential directors, should familiarise themselves with the steps taken by the company to mitigate their risk, for example, by taking out insurance cover or indemnifying them.

The Act does not, however, permit a company to indemnify a director in respect of any loss arising from his negligence, default, breach of duty, or breach of trust if fraud or dishonesty on his part caused it.

Doug Molyneux, Counsel, is a member of the Funds and Investments Team within the Corporate and Commercial Practice Group of Appleby. A copy of this column can be found on the Appleby web site at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters described herein, persons are advised to consult with a lawyer.