Meaning
The collective legal power to manage and direct the affairs of a corporation is vested in its board of directors by the articles of association and corporate law. Boards use this directorial authority to enter into contracts, appoint executives, issue shares, and manage corporate assets. It operates on a collective basis, meaning individual directors do not possess the power to bind the company unless such power has been specifically delegated to them.
Board Governance
Internal governance documents define how directors may exercise their power. The directorial authority is exercised through formal board resolutions passed at duly convened meetings or by unanimous written consent. Board resolutions prevent single directors from making unilateral decisions that could jeopardize corporate assets.
Fiduciary Boundary
Fiduciary duties limit the scope of director actions even when they are technically within their legal powers. The directorial authority must be exercised in good faith and in the best interests of the company as a whole. Directors who exceed their mandate or act for an improper purpose can be held personally liable for any losses the corporation suffers.
Apparent Delegation
Corporate boards regularly delegate specific powers to executive officers or committees. Third parties dealing with the company are entitled to rely on the apparent directorial authority of these officers if the board has held them out as having such power. Protection for this reliance exists under the indoor management rule, which relieves external parties of the obligation to verify that internal approval processes have been followed.
