The board is a body in an association that varies from joint-stock companies to associations and it is estimated that there are several hundred thousand boards in Norway and even more board members.
In essence, the board's responsibility and the activities of a board are regulated by law, but not always, associations have no legal regulation. The Limited Companies Act is central in all contexts, and is used analogously where it fits.
However, regulatory control of the board's responsibility is not necessary as the board's responsibility follows from the general tort law. The person who generally causes damage in the event of negligent behavior is liable to pay compensation if the behavior is the cause of the injury and it has an economic character (the tort law in a nutshell).
Legal regulation is however necessary if the behavior is to be penalized (no one can be punished without law and judgment).
Negligence is defined by the courts and is discretionary. You are negligent if you act differently than a reasonable person would do in the same situation.
In limited companies, the board is subject to the general meeting, which normally meets every year. In foundations, the board is the governing body. In associations and other associations, the board will be subject to an annual meeting.
Be aware: As a board member, you represent all the corporate interests and not just the shareholder who has got you in. Nor can he or she instruct you as a member of the board, only the shareholders can do so at a general meeting and then with a majority vote. The state can, for example. not instruct Sigve Brekke in Telenor regarding the treatment of key employees, the State must do this at the general meeting and normally by the replacement of the board.
When it comes to the role of the board, I will refer to Google and to the keyword "Practical board work" on Altinn, as well as keyword "NUES".
There has been an increase in litigation regarding the board's responsibilities over the past 20 years, but this is not too disturbing compared to the large number of boards in Norway. However, many cases are settled before trial or in insurance settlement.
In most cases, the board of directors does not incur any liability, but once the liability occurs, the consequences are quite serious. Public limited companies have limited liability, but that does not apply to the board members. They are responsible with all their wealth, housing, cabin, car, boat cash, etc.
The different phases
In the normal operating phase, when the traffic light flashes green, the board is responsible for managing the company and supervising the business. It is important to have the right CEO or general manager. Establish a good relationship with this one. Accept budgets and receive regular reports and follow-ups. Asset management, liquidity, working capital and the development of equity. Ask critical questions and don't be afraid to remove the CEO if they don't work. That is the duty of the board.
Business decisions often lead to losses for the company, but this does not always trigger responsibility for the board. A company must take risks in order to be able to achieve results and losses can often occur. The decisive factor is that the decisions are based on sufficient grounds and on sufficient information and on a sound assessment of the risk (ie a due diligence).
The next phase is where the traffic light glows yellow, where the board discovers that the company has liquidity problems and bills are not paid. If this persists over time, the board must orientate itself of the situation and carefully study the liquidity, working capital and equity. If the equity has fallen below certain levels, the Board also has a duty to act. The general meeting must be convened and the necessary measures taken.
It is necessary to have a correct understanding of the term equity. It is not necessarily the equity that appears in the financial statements that is decisive, but the real equity in the company. The company can, for example have too low an assessment of assets and liabilities may consist of subordinated loans granted by shareholders. In this phase, it is important to involve the relevant banks and major creditors in order to find solutions.
The last phase is where the traffic light flashes red and the company is in fact bankrupt and operated at the creditors' expense. Here, the board has an obligation to petition the company for bankruptcy, and declare it bankcrupt.
There may be situations where considerations other than creditor interests comes into play. The company can be central to a peripheral area and a bankruptcy will be disastrous for society and its employees. How long a board can fight a bankruptcy is disputed, but at least it is clear that there must be a legitimate hope of being able to save the company. Cooperation with banks and other creditors is crucial here. In this final phase, it is a high-risk sport to sit in the board and the penal provision in the various laws may also apply.
The Board's annual report and financial statements must be read carefully and not just signed after the CEO and the auditor have approved the drafts. It is not exempt from liability that the auditor has approved the accounts. Auditors and board members are often sued together.
Board meetings must be held in a proper manner, requirements for timely notice, sufficient time for consideration, sufficient written documentation. You can object to a conference call or video conference. You have a duty to be present, to participate actively and to vote.
Who is responsible
The board's responsibility is not a collective responsibility and the individual board members will be assessed individually. Exemption from liability for valid absence from board meeting. If you get minutes of the board for signing, you must record any disagreement. If you otherwise disagree with a board decision, you must be accurate in noting your position and possibly voting against. If there is a risk of loss, or mistakes or fraud are discovered, it may be necessary to withdraw as a board member and even report this to the company register. The company and the auditor should also be notified. In the case of a longer illness, there is an obligation to resign as a board member.
If the general meeting decides discharge from liability for the board of directors at the general meeting, please be aware of the following: The discharge applies only to specified matters and not in general and only to requirements the company may have against the board. It does not apply to claims that third parties may have and these are normally in the majority.
What about the responsibility of the board of directors in owner sections and associations? The case law has settled on a milder negligence assessment than for corporations. A too strict standard of care would discourage most people from taking on the position. If the members of the board have done as well as they can, it will, according to case law, take much to impose responsibility.
My advice to conclude is this: Ask for board liability insurance. It normally covers both negligent and grossly negligent liability, but of course not criminal liability. Remember to see the insurance policy and that it is active and paid for in the individual years. The deductible should be 0, and in any case low. Also check that the policy covers both liability and legal costs, the latter can be high.
