fraudulent representation

[iloveglee]

Calling all lawyers. If the chief executive officer of an organisation is charged and found guilty of fraudulent representation, and the board of directors did nothing to suspend, or remove the ceo whilst enquiries were being undertaken, what would be the position of the board in the case of guilty verdict. Who does the buck stop with, the ceo, or all of the board of directors. What is the responsibility of the board in these circumstances.

[tonywiltshire]

Prior to the Companies act 2006 the civil duties of a director were largely governed by common law.
Directors must continue to act in a way that benefits the shareholders as a whole, but there is now an additional list of non-exhaustive factors to which the directors must have regard. :
1. The long term consequences of decisions
2. The interests of employees.
3. The need to foster the company's business relationships with suppliers, customers and others
4. The impact on the community and the environment and to maintain a reputation for high standards of business conduct
5. The need to act fairly as between members.
Directors are responsible for ensuring the accounts are accurate and delivered on time, shareholders own companies but they do not run them this is the duty of the directors, if the shareholders do not believe the directors, including the CEO, are acting in a way that enhances the company it is for them to take the civil action they believe to be appropriate, this assumes the criminal law has not been broken.

[iloveglee]

That's very informative. Supposing that the charges were for criminal fraud rather than civil, would this change the position at all. Clearly the very fact that the ceo has been charged tends to bring the company into disrepute, and should really step down, or at least accept suspension until the matter is resolved. But if this person refuses ........ where do the board stand.

[tonywiltshire]

The directors can ask the CEO to stand down and if he refuses call a shareholders meeting, remember they own the company, they can also ask him to stand down and vote him down at an extraordinary shareholders meeting. If he has been charged with a criminal act involving the company I would argue he has a duty to stand down or be suspended by the shareholders until the matter comes to court.

[iloveglee]

I would agree that this person has a duty to stand down. If he does not then the board certainly has a duty to call a meeting of the shareholders etc. If the board are persuaded by the ceo not to do this, and the ceo refuses to stand down, is there likely to be any penalty brought to bear, in legal terms rather than being voted off the board, if the board fails to act.

[tonywiltshire]

Only if the other directors are guilty of a civil tort or criminal act, but remember the shareholders are not going to see their investment reduced by irresponsible actions by those who should be promoting the company.

[iloveglee]

Thanks for the information, this has been really useful