Featured Report

Fiduciary Duties, Director’s Duties, and Sports Governance of National Sports Associations

In recent years, Hong Kong has delivered notable achievements in sports development. The Government has allocated additional resources to promote sports in the community, support elite sports and maintain Hong Kong as a centre for major international sports events. Meanwhile, the Government understands well the role of professional governance of National Sports Associations (NSAs) in the furtherance of sports development in Hong Kong. The LCSD has therefore organised symposiums and themed courses on “Governance, Leadership and the Future Development of Sports” for NSAs in a bid to enhance their overall standard of governance. While our previous Featured Report examined the importance of the Companies Ordinance for directors of local NSAs, this issue will shed light on another module, Directors’ Duties and Fiduciary Duties. This module aims to augment the public understanding of the roles and responsibilities of directors and the management of NSAs in organisation, management and enhancing internal control.

Directors of NSAs are legally elected or appointed to the posts of trustees of organisation members, exercising powers and holding money or assets for others. Directors shall make decisions and act in good faith for the best interests of NSAs with diligence and honesty at all times.

Directors’ Duties

The Companies Ordinance authorises directors of NSAs to manage the assets and operations of their organisations. Despite being protected by laws, such powers are jointly conferred by the organisations instead of solely vested in directors themselves. NSAs establish boards of directors in accordance with the articles of associations before authorising individuals to act as directors. As such, directors are held legally responsible for their NSAs instead of shareholders or individual institutional stakeholders.

Under Section 465 of the Companies Ordinance (Cap. 622), a director of an NSA shall exercise reasonable care, skill and diligence. The degree of reasonableness is generally measured by objective and subjective tests:

Objective tests:
The knowledge, skills and experience a director is required to be equipped with in efficient discharge of duties
Subjective tests:
The knowledge, skills and experience an individual should have

Any director failing to comply with the rules set out by the Companies Registry may be liable to legal proceedings and may be disqualified from acting as a director. As such, it is imperative for directors to understand well and discharge their duties with care. It is stipulated in the guidelines issued by the Hong Kong Companies Registry that directors are required to observe the following 11 principles in discharge of duties:

1. Act in good faith for the benefit of the NSA as a whole
2. Use powers for a proper purpose for the benefit of members as a whole
3. Do not delegate powers except with proper authorisation and duty to exercise independent judgement
4. Exercise care, skill and diligence
5. Avoid conflicts between personal interests and interests of the NSA
6. Do not enter into transactions in which the directors have an interest except in compliance with the requirements of the law
7. Do not gain advantage from use of position as a director
8. Do not make unauthorised use of the NSA’s property or information
9. Do not accept personal benefit from third parties conferred because of position as a director
10. Observe the NSA’s articles of association and resolutions
11. Keep proper books of account

Fiduciary Duties

Under the articles of association and the relevant laws, shareholders shall elect directors to act as trustees of the organisation, who are authorised to manage and hold all money and assets of the NSA on behalf of the NSA and its members, as well as to oversee its operations. As such, the directors should regard themselves as the guardians of their organisations. They shall perform fiduciary duties with care and loyalty instead of just acting as they wish.

The duty of care requires directors to exercise their independent judgement with care and conscious, while the duty of loyalty requires directors to take into account the greatest benefit of the NSA in addition to the interests of individuals or other groups when acting. Such duties are broadly divided into the following:

・ Treat all parties (e.g. the NSA, subvented organisations and associations) with the greatest sincerity
・ Act in good faith for the interests of the NSA
・ Proper exercise of powers
・ Avoid conflicts of interests and duties involving personal interests
・ Exercise reasonable care, skill and diligence

Board Members are responsible for formulating, adopting and reviewing the vision, mission, principles, policies and values of NSAs, as well as appointing the most suitable individuals as directors in light of the objectives. In addition, Board Members shall check their work progress and review the policy issues on a regular basis to ensure full compliance of authorised actions with the NSA’s own strategic objectives and policies. Redress measures shall be taken as appropriate immediately if NSAs are found to have failed to deliver as planned. Putting the above operational arrangements in place, NSAs will effectively establish good governance systems to achieve the goal of autonomy, just like companies and enterprises, ensuring a steady operation and development of NSAs.

To learn more about the programme, please visit the following webpage:
www.lcsd.gov.hk/en/programmes/programmeslist/sss/governance.html