Business Law Section Corporate Governance Committee International Developments Subcommittee
Corporate Governance and Fiduciary Duties
A Multi-Jurisdictional Review of the Directors’ Relationship to the Corporation
The International Developments Subcommittee is in the process of preparing a analysis of the board of director’s relationship to the corporation, comparing concepts of fiduciary duty and other concepts of director duties in civil law and common law jurisdictions. This compilation contains draft papers from eleven jurisdictions, based on the propositions and template attached as Schedule A. Each paper is a working draft; the drafts are not yet complete, let alone conformed and edited. We expect that the papers will be significantly different in their final form. (We may also add other jurisdictions as this project progresses.) AS WORKS IN PROGRESS, THESE DRAFTS SHOULD NOT BE RELIED UPON AS THE BASIS FOR LEGAL ADVICE. We welcome comments and further contributions.
Tor #: 1323908.2
DRAFT: FOR DISCUSSION PURPOSES ONLY
In common law jurisdictions fiduciary duties are the cornerstone of the relationship between directors and officers and the corporations they serve. Therefore what fiduciary duty means - what obligations and restrictions it imposes on directors and officers – is crucial to understanding corporate governance practice in a particular jurisdiction. To appreciate how corporate governance in non-common law jurisdictions may differ we need to investigate whether a similar fiduciary duty exists (or if some other concept is utilised) and what obligations and restrictions it imposes upon the conduct of directors and officers in those jurisdictions. TEMPLATE
What does fiduciary mean?
The corporate model separates ownership from control. Fiduciary duties deal with the delegation of control to non-owners, giving them significant discretionary powers over the corporation that cannot be constrained by other legal devices (for example the requirements of trusteeship) without undermining the objectives of the corporation (for example, to accept a level of risk necessary to achieve a particular return). A fiduciary relationship implies vulnerability and dependency on the part of the beneficiaries (the corporation and its owners) and the potential for the fiduciaries (the directors and officers) to manipulate the powers of the corporation for their own benefit. So the fiduciary has the power to control the corporation and its assets but the exercise of that power is conditioned by a duty to use it in the best interests of the corporation and thereby its owners. Contributors might consider completing this section with a contemporary description of the fiduciary duty of directors in their jurisdiction. Such descriptions could include landmark case law as well as any statutory or regulatory innovations that have elucidated current understandings of the fiduciary duties of directors.
How did the concept of fiduciary duty develop and apply to directors of business corporations?
Understanding the historical antecedents of fiduciary duty helps in understanding its function in modern corporate governance. For example, common law antecedents of the legal nature of the office of director include "agent", "trustee" and "managing partner". Whether these constitute direct forbears of fiduciary duties for directors or are better construed as analogies will depend upon the jurisdiction in question and the theoretical preference of the author(s). The central aim of this part of the project is to provide an account of the historical development of the concept of fiduciary duties in the jurisdiction concerned.
Tor #: 1323908.2
-2C. To whom are these fiduciary duties owed?
Many jurisdictions formulate these obligations as owing to the corporation itself. Thus,...