What is the duty of care for directors?

The duty of care for directors is defined as the requirement to exercise skill and diligence that a reasonably prudent individual would use in similar circumstances. This standard emphasizes that directors are expected to act with care, competence, and attention in the management of the company’s affairs. It reflects a balancing act where directors must make informed decisions while being aware of the potential risks and implications of their actions.

This duty is rooted in the overarching principle that directors carry a fiduciary responsibility toward the company and its stakeholders. They must not only protect the company’s interests but also act in good faith and with the level of care that would be expected from someone in their position. The expectation is that directors will stay informed about their company's operations and make decisions based on sound judgment.

In contrast, other options do not accurately encapsulate the essence of the duty of care. For instance, the ability to delegate responsibilities relates more to the governance structure and how a board may operate rather than the specific duty of care itself. The expectation of ensuring company profits can be overly simplistic as it could lead to directors making short-term decisions without considering the long-term sustainability of the company. Lastly, limiting liability to financial losses addresses risk management rather than the fundamental requirement of care that directors must uphold in their decision