Fiduciary Duties Of Directors Research Articles

Fiduciary duty for directors and managers in the light of anti-ESG sentiment: an analysis of Delaware Law

ABSTRACT The global rise in ESG regulations, particularly in Europe, is impacting businesses worldwide. Research grows on a positive correlation between ESG and corporate performance, and 2023 constitutes a turning point marked by a backlash in the U.S. This has prompted a reassessment of sustainability strategies and raised concerns about potential conflicts with the fiduciary duties of directors and portfolio managers. This paper explores the tension between ESG and shareholder primacy under Delaware law, which is home to 66% of Fortune 500 companies. It is a contribution to the theories of shareholder primacy and corporate governance with the most up-to-date evidence, at the intersection of law, economics and finance. Although Delaware courts have not specifically approached the liability extent of directors and asset managers in ESG-related decisions, they have established the elements of the fiduciary duties of care and loyalty, which can be applied to ESG-aligned decisions. This paper highlights guidelines for directors, portfolio managers and fiduciaries when making ESG-aligned decisions, in particular the careful documentation of the process followed in reaching a decision. The paper also calls for more rigour in the field of sustainability.

Regulations on Non-Financial Disclosure in Corporate Reporting: A Thematic Review

There is a growing call globally for corporations to improve transparency in corporate reporting, along with the surge of enhancing disclosure of non-financial information. Companies are seen as agents for contributing to a better future, and hence could assist in achieving the sustainable development goals (SDGs) 2030, via transparent non-financial disclosure. This review paper is premised on the fact that laws on non-financial disclosure may be useful in enhancing the transparency of companies’ conducts. Hence, this systematic review aims to synthesize the literature from 2014 to 2021 on the patterns and trends relating to regulations on non-financial disclosure in corporate reporting by companies. A keyword search followed by filters provided by the Web of Science Core Collection and SCOPUS databases resulted in a total of 369 documents being found. A total of 62 articles were reviewed after manual filtering and exclusion. A thematic review of these 62 articles identified 20 initial codes, which were then grouped into eight clusters: Directive 2014/95/EU, disclosure approaches, fiduciary duties of directors, stakeholder engagement, the effectiveness of disclosure regulations, the impacts of rules, the role of different actors and corporate accountability. The paper finds that the patterns and trends in the review set the path for future research on laws of non-financial disclosure, as they serve as a guideline for researchers for future studies.

Director's Fiduciary Duties and the future Corporate Sustainability Due Diligence Directive in the wake of an English case law

Director's Fiduciary Duties and the future Corporate Sustainability Due Diligence Directive in the wake of an English case law

The American Misconstruction of Director Fiduciary Accountability

Modern English and American corporate law was broadly fashioned in the nineteenth century. Oddly however, the courts of those two closely linked jurisdictions developed profoundly opposed views on a most basic matter. After some initial conflict in the cases, the English settled on the principle that directors are status fiduciaries only to their corporation. The Americans, with a comparable initial conflict in their cases, instead eventually settled on the notion that directors are status fiduciaries to shareholders. I track how that difference developed through the course of the nineteenth century. I also trace how fairness wrongly became an element of the American duty. Director fiduciary duty, director duty to shareholders, corporate personality, joint stock company, centralised management, entire fairness, director duty to creditors

THE ROLE AND DUTIES OF DIRECTORS IN THE PROMOTION OF CORPORATE GOVERNANCE: A SOUTH AFRICAN PERSPECTIVE

Owing to global changes in the field of corporate governance and corporate law reform in South Africa, corporate governance has become an important aspect of the way in which corporations are doing business. Corporate governance is the collection of law and practices that is grounded in the fiduciary duties of directors. It regulates the conduct of those in control of the corporation. An important aspect of corporate governance is the establishment of structures and processes that enable directors to discharge their legal responsibilities. This article investigates corporate governance principles in South Africa and explores the importance of the role and duties of directors in the promotion of corporate governance principles.

Post-resignation Survival of Fiduciary Duties: Big Catch Fishing Tackle Proprietary Limited v Kemp (17281/18) 2019 ZAWCHC 20 (5 March 2019)

In Big Catch Fishing Tackle Proprietary Limited v Kemp (17281/18) 2019 ZAWCHC 20 (5 March 2019) the Western Cape Division, Cape Town had to determine whether a former director of a company continued to owe fiduciary duties to the company after he had resigned, and if so, whether he could temporarily be interdicted from competing with the company until the main action was heard in court. The court dismissed the company's application for an interim interdict. This article critically analyses the judgment in regard to the post-resignation fiduciary duties of directors. The judgment is noteworthy as it sheds light on the post-resignation fiduciary duties of directors – an area of law which is still developing in South African law. This article contends that the court incorrectly conflated the legal principles relating to the appropriation of corporate opportunities with the misuse of confidential information. It is further argued that courts should not lay down a closed list of instances when directors' fiduciary duties will continue post-resignation, as the court attempted to do in this case. It is suggested that courts should adopt a flexible and pragmatic approach in determining when a director's fiduciary duties will survive after his or her resignation.

The road not taken: manoeuvring through the Indian Companies Act to enable AI directors

ABSTRACT Under the framework of the Indian Companies Act 2013, we seek to explore the possibilities of AI systems replacing directors in the board-room. We begin by examining the intractable debate in moral philosophy on the legal personhood of AI. Then, we go on to examine the current judicial and statutory understanding of the fiduciary duties of directors in s 166 of the Companies Act. We find that with the introduction of augmented AI into boardrooms, the existing construct of fiduciary duties is relatively sufficient, but needs some adaptation. Thereafter, we seek to build a case for dilution of the ‘natural person’ requirement for company directors in s 149 of the Companies Act and use Professors Bainbridge and Henderson’s concept of Board Service Providers towards this end. Drawing from Indian law provisions, the paper concludes by arguing that the proposed dilution is not as radical as it initially appears.

Responsibility of the Executive Body of a Legal Entity for Fraud

The paper discusses various legislative and enforcement approaches in the Russian Federation, USA, and Great Britain; compares the various provisions of the Plenums of the Supreme Arbitration Court of the Russian Federation and the Armed Forces of the Russian Federation on issues of good faith; analyzes the application of these provisions by the courts when considering issues of holding directors to account as a result of malpractice that entailed property damage. By the example of consideration of a number of key cases from the law enforcement practice of the courts of the Anglo-American system of law, the question of the use of tests is considered: objective and subjective integrity tests to regulate the issue of holding the executive body accountable. English and American courts resort to the criterion of good faith in very rare cases, and the fiduciary duty of directors in commercial companies was significantly limited. The approach used by the common law courts implies a minimal degree of court interference in the economic affairs of commercial companies. Holding the director accountable is allowed only in case of obvious neglect of duties or is considered in some cases based on the specific circumstances of the case. Russian courts often hold directors accountable not as a result of gross negligence or proven intentional actions by executive bodies to harm the company, but as a result of society not achieving the desired economic result. Besides, dishonesty compensates for obvious gaps in the internal corporate routine, which do not make it possible to precisely determine the boundaries of authority and the area of responsibility of the executive body. The author formulates a conclusion on the degree of admissible judicial discretion when applying the provisions on good faith to corporate relations as requiring special regulation.

Some Thoughts on the Director's Right to Information

以公司法第193條之1增訂之討論為契機，本文以德拉瓦州法為對象，思考我國董事資訊權之若干問題，認為董事資訊權乃輔助董事執行職務所需，係附隨於受託義務而生。然此並非意味董事得恣意請求公司提供資訊，毋寧仍有若干限制。再者，由是否明文增訂董事資訊權之討論，可見我國對於董事定位，以及其所謂監督權之內涵為何等議題上，仍未有共識，致對於董事資訊權產生若干誤解；關於董事資訊之分享範圍，以及如何提供該權利行使之有效救濟途徑等，則付之闕如。本文嘗試就此等問題進行若干思考，提出若干意見。 By use of the discussion in connection with the addition of the draft Article 193-1 of the Company Act, this article considers and analyzes the issues with respect to the director's information right by reference to the Delaware law, arguing that such right is to assist the director to perform his/her duty, so it is the right ancillary to the director's fiduciary duty. However, recognizing the director has the information right does not mean the director could arbitrarily request any information he/she wants. Rather, such right is with limitation. Besides, the discussion whether to explicitly provide director information right reveals that the community in Taiwan does not have consensus on certain fundamental issues, such as the role a director play, the meaning and scope of the director's supervision right, etc., that lead to misunderstanding to the director's information right; furthermore, the discussion regarding the scope of the director's information sharing and the remedial measures available are absent. This article considers the above issues to fill the vacuum.

Some Thoughts on the Director's Right to Information

以公司法第193條之1增訂之討論為契機，本文以德拉瓦州法為對象，思考我國董事資訊權之若干問題，認為董事資訊權乃輔助董事執行職務所需，係附隨於受託義務而生。然此並非意味董事得恣意請求公司提供資訊，毋寧仍有若干限制。再者，由是否明文增訂董事資訊權之討論，可見我國對於董事定位，以及其所謂監督權之內涵為何等議題上，仍未有共識，致對於董事資訊權產生若干誤解；關於董事資訊之分享範圍，以及如何提供該權利行使之有效救濟途徑等，則付之闕如。本文嘗試就此等問題進行若干思考，提出若干意見。 By use of the discussion in connection with the addition of the draft Article 193-1 of the Company Act, this article considers and analyzes the issues with respect to the director's information right by reference to the Delaware law, arguing that such right is to assist the director to perform his/her duty, so it is the right ancillary to the director's fiduciary duty. However, recognizing the director has the information right does not mean the director could arbitrarily request any information he/she wants. Rather, such right is with limitation. Besides, the discussion whether to explicitly provide director information right reveals that the community in Taiwan does not have consensus on certain fundamental issues, such as the role a director play, the meaning and scope of the director's supervision right, etc., that lead to misunderstanding to the director's information right; furthermore, the discussion regarding the scope of the director's information sharing and the remedial measures available are absent. This article considers the above issues to fill the vacuum.

In Whose Interests Should a Company be Run? Fiduciary Duties of Directors During Corporate Failure in India: Looking to the West for Answers

This Comment looks at the debate as it has played out in the legal jurisprudence of the U.S. and the U.K. The analysis of each considers the three financial stages of a corporation’s existence that are specifically addressed in the debate today, i.e.: (i) solvency; (ii) insolvency; and (iii) the zone of insolvency. After setting out the current position, this Comment specifically addresses the various shortcomings and criticisms of the models adopted by each jurisdiction and offers observations on the status quo and the implementation of these models. On this basis, this Comment goes on to propose a model to be adopted by India, the Indian legal jurisprudence in this respect still being in its evolutionary stages and lacking the depth and the level of analysis found in the West.

The Doctrine of Corporate Opportunity: A Comparative Analysis – Part I

SUMMARY In this article, the authors aim to answer the often-asked question when do the fiduciary duties of a director cease to exist, in order to allow him to undertake ventures for personal interest? This has not yet been conclusively answered by the courts, and upon conducting a detailed case law analysis, we conclude that there exist two primary approaches, which the courts have relied upon in arriving at their decisions. These have been laid down in the landmark English cases of Bhullar and Foster. These two cases are indicative of these two largely different approaches, and therefore, while not conflicting, and easily distinguishable on the basis of the facts themselves, can be said to be conflicting with respect to the difference of approach adopted by the Court of Appeals in England. This article endeavours to elucidate upon these two approaches, in light of Bhullar and Foster. Accordingly, the paper has been divided into various sections, which aim to elaborate on the law relating to the fiduciary duties of directors, in the particular context of use of corporate opportunity. Firstly, the authors have provided a jurisprudential background of the law on fiduciary duties of directors in common law. The statutory law, as followed in the UK and India,, and common law, as followed in the USA, with respect to the same, have been discussed, keeping in mind common law principles which have developed as a result of detailed judicial analysis. Secondly, having analysed the law on directors’ fiduciary duties in different common law jurisdictions, the authors have conducted an in-depth analysis of the two primary cases, i.e. Bhullar and Foster, highlighting the discussion on issues involved in the same, and examining the difference in the approach adopted by the court, pre and post the enactment of the Companies Act, 2006. Subsequently, the two approaches, namely the American Model and the English Model which were utilized by the courts in arriving at greatly varying decisions in the two cases have been studied. Lastly, in light of such analysis, the authors have compared and contrasted Bhullar and Foster and highlighted the inherent difference in approach between the two. The Indian position with respect to fiduciary duties of directors has been simultaneously discussed and compared in every section.

Fiduciary Duties of Corporate Directors in Uncertain Times

Confronting new political uncertainties, heightened challenges, and asserted “best practices,” directors may wonder whether their fiduciary duties have changed. The authors synthesize the latest decisions of the Delaware courts on the standards of conduct for directors and the standards by which their conduct is reviewed. While directors should expect uncertainty to be a fact of corporate life, neither the fiduciary duties of directors nor the protections afforded them have changed. Disinterested and independent directors, acting in good faith to make decisions they deem in the best interests of the corporation, continue to have broad protections under the business judgment rule. This legal framework enables and encourages active directors to make hard choices when they need to do so.The paper includes flowcharts illustrating how the standards of judicial review apply to various categories of business decisions that directors may have to make. It concludes with practical suggestions for directors and General Counsels to establish business judgment rule protection for board decisions or, where applicable, withstand more stringent standards of review.

The Elephant in the Room: Helping Delaware Courts Develop Law to End Systemic Short-Term Bias in Corporate Decision-Making

Short-termism in corporate decision-making is as problematic for long-term investors as relying on a three-mile radar on a supertanker. It is totally inadequate for handling the long-term risks and opportunities faced by the modern corporation. Yet recent empirical research shows that up to 85% of the S&P 1500 have no long-term planning. This is costing pension funds and other long-term investors dearly. For instance, the small minority of companies that do long-term planning and risk management had a long-term profitability that was 81% higher than their peers during the 2001–2014 period—with less stock volatility that costs investors dearly as well. This corporate short-termism mindset is even more troubling given that at least half of the value of the companies in the S&P 1500 is generated by expectations for realization of future value. Long-term investors therefore face a long-term expectations pipeline of hoped-for returns without a plan by corporations to back it up. The tragic result: this short-termism mindset appears to have a substantial depressing impact on long-term market returns while increasing long-term risk exposure. Both have contributed to the significantly underfunded status of many pension funds today. Delaware courts, the primary referees of corporate director fiduciary duties in the United States, are so frustrated with the persistent effects of short-term pressures—including corporate fraud and compliance breaches—that they are actively encouraging investors to bring the right cases to help change the rules. This Article examines the effects of short-termism and the Delaware judiciary’s responses to it. It then shows how existing Delaware law could be extended to address the underlying causes of corporate short-term bias, rather than merely imposing punishment on the symptoms.

Delaware's Diminishment?

In the world of corporate law, Delaware reigns – or so the theory goes. This Chapter examines the reality of that statement, focusing on directors and their fiduciary duties in the context of the nexus of contracts theory and Delaware’s default-based system of governance. I argue that the nexus of contracts approach fails to explain the reality of today’s corporate governance structure and that the same is true with respect to Delaware’s role as a nexus in the nexus of contracts world. Instead, the private, contract-based space, to the extent it ever existed, has been occupied by the federal government for quite some time – and the occupation takes place both directly and indirectly. Two theories developed in other works are key to this analysis: the theory of publicness and the information-forcing-substance theory, or the manner in which federal securities disclosure provisions develop director fiduciary duties.

Financial Twilight Re-Appraisal: Ending the Judicially Created Quagmire of Fiduciary Duties to Creditors

Directors owe fiduciary duties of care and loyalty to their corporations, and by extension to their shareholders. When a corporation approaches or enters insolvency, however, courts have recently found that the fiduciary duty calculus may change. Recognizing that creditors have financial interests similar to those of shareholders at or near insolvency, courts in several countries have extended fiduciary duty protection to creditors on equitable grounds. This trend has led to a state of flux and uncertainty in corporate law. Consequently, courts and commentators are battling to fully comprehend the controversial subject of director fiduciary duties to creditors in various jurisdictions. Due to this jurisprudential flux, unresolved issues include, for example, the core notion that the duty arises when the company enters into an “ill-defined sphere” known as the “zone” or “vicinity” of insolvency. The law is remarkably short of specific judicial guidance as to how directors who engage in commercial risk-taking with a view to corporate rescue should discharge their duties without harming the interests of creditors. Indeed, the debate continues even on the critical doctrinal question of whether such a duty is even needed.This Article uses corporate law in both the United States and Australia as emblematic of the real practical concerns inherent in the expansion of fiduciary duties. Consequently, the Article argues that the judicial recognition of directors’ fiduciary duties to creditors when at or near insolvency is objectionable, both from a policy and a doctrinal standpoint, and that any further attempt to develop the common law in this regard should be jettisoned in favor of reliance upon the existing, or modified, statutory regime aimed at creditor protection during times of financial distress.

Does the Buck Stop Here? Board Responsibility for FCPA Compliance

This article focuses on the corporation law aspect of “corporate compliance,” i.e., how the legal structure of the corporation should, but often does not, ensure compliance. It explains that a corporation’s board of directors, legally obligated to manage the business in the interests of the corporation and its shareholders, should run the firm in order to avoid costly violations of the U.S. Foreign Corrupt Practices Act (FCPA) or other laws. In addition, the article explains that because the fiduciary duties of directors are in principle enforceable by shareholders, the specter of shareholder suit against directors who violate their duties and allow the firm to operate illegally should result in corporate compliance with the FCPA, or at least should provide a remedy to shareholders if directors fail, and violations occur. This article shows, however, that the fiduciary duties of directors are at best weak reeds in practice. Although there are certainly many fine directors, fiduciary duties in fact legally require directors to do very little and it is nearly impossible for a shareholder to obtain a judicial remedy against a faithless director. This article argues that several decades of Delaware court decisions, combined with legislation enabling director exculpation in nearly every state, have resulted the evisceration of director fiduciary duties and remedies for their violation. This article then looks closely at the allegations of FCPA violations and a cover-up of the same in the mid-2000s by Wal-Mart Stores, Inc.’s Mexican subsidiary. This article looks at the ill-fated shareholder derivative suits claiming breach of fiduciary duties by the Wal-Mart board members that were filed in the wake of the FCPA allegations. This article concludes that a return to the basics of corporation law, with enforceable fiduciary duties imposed on board members, might improve compliance with the FCPA.

A Contractual Approach to the Regulation of Corporate Director's Fiduciary Duties

Traditional American corporation statutes state that the business and affairs of the corporation shall be managed by a board of directors who act as fiduciaries of the corporation. The purpose of this paper is to explain the economic logic underlying the regulation of corporate directors' fiduciary duties, placing special emphasis on the consequences of the adoption of protective measures for the directors such as indemnification and liability insurance.

Corporate Governance and the Business Judgment Rule: Fiduciary Duties of Directors in Canada and the Peoples Republic of China

This paper will examine the fiduciary duties of directors expressed in statutory instruments in Canada and China. Analyses herein incorporate statutes and corporate law, secondary literature, newspaper commentary, and select jurisprudence, to help elucidate the similarities and differences between the two countries’ regulatory frameworks, from the perspective of corporate governance and responsible business decision-making.

The Fiduciary Duties of Directors of the Companies Facing M&As in Delaware and Japan

This paper studies the relationship between the Revlon duties and the principle of maximizing shareholders’ interests, and its position under the systems of Corporate Law, and then identifies the characteristics of relevant laws in Japan and Delaware. When considering the duties of directors of target companies regarding the fairness of the sale price, the right approach is to discuss how to deal with conflicts of interest and the final-period problem as issues specific to the sale of companies, rather than considering the issue based on deduction from the principle of maximizing shareholders’ interests. There are two prominent features of relevant Japanese laws with respect to judicial examination of the duties of directors regarding the appropriateness of the sale price: (1) respect for shareholders’ intentions and, (2) the approach of paying attention to the price itself, rather than the process of mergers and acquisitions. Among background factors is a consistency with related systems such as regulation on transactions involving conflicts of interest and regulation on issuance of new shares in Corporate Law. Therefore, in order to require revision of the duties of directors of target companies, it is necessary to present a package of reforms regarding relevant systems as a whole.