Reforming Director Liability in UK Company Law:
Should UK Company Law adopt the Business Judgment Rule with an Enhanced
Duty of Good Faith?
Abstract:
This research will examine the nature of directors’ duties in the English common law and
the reform under the Companies Act 2006 (CA 2006), in order to determine whether they
are effective in the 21st Century. The CA 2006’s reform of directors’ duties was envisaged
to develop a much more responsible system that fits with the nature of modern business,
as well as to create a direct obligation to the shareholder and other interested parties in
the company (as identified in s. 172 CA 2006). The aim was to create an Enhanced
Shareholder Value (ESV) model. The fundamental problem that arises is that it does not
meet this aim. Thus, it is clear that there has to be reform of directors’ duties in the CA
2006 to ensure that the common law does not revert them to the weakened rights of the
common law.
This research argues that it is necessary to implement the heightened obligations owed
by directors in the American/US common law, which includes a standalone principle of
good faith. However, to prevent an overly onerous set of obligations, it is necessary that
the business judgment rule is treated as a defence. Thus, this research undertakes a
comparative case law review to illustrate why this reform is necessary.
Table of Contents
Abstract: ..................................................................................................................................................... 1
1.0
Introduction: .................................................................................................................................. 3
1.1 Statement of Problem: .................................................................................................................... 3
1.2 Aim and Objectives: ........................................................................................................................ 4
1.3 Methodology: .................................................................................................................................... 4
2.0 The Anglo-Common Law Roots of Corporate Governance – The Indoor Management
Rule: ............................................................................................................................................................ 6
2.2 The Internal Manager – The Director: .......................................................................................... 6
2.3 The Indoor Management Rule, Corporate Governance Codes and Directors’ Duties: ........ 7
2.4 The 2012 Code, Internal Management – The Need for Further Implementation: ................. 8
3.0 Directors’ Duties under the CA 2006 and the English Common Law: .............................. 10
3.1 The Basis of Director’s Duties: .................................................................................................... 10
3.2
Who is the Director? ................................................................................................................ 10
3.3 Directors’ Duties – An Evolution:................................................................................................. 11
3.4 Directors’ Duties – Merely a Reiteration of the Common Law:............................................... 13
4.0 Directors’ Duties in the USA and the Business Judgment Rule – Should they be
Implemented in the UK? ....................................................................................................................... 15
4.1 The Business Judgment Rule and the American Directors’ Duty: ......................................... 15
4.2 A Case Law Review of the Business Judgment Rule: ............................................................. 16
5.0 Conclusion: Should the Business Judgment be Implemented in the UK?...................... 19
1.0 Introduction:
1.1 Statement of Problem:
Director liability is of especial concern within company law because there has to be the
correct balance between lifting the corporate veil and holding the director who has failed
in his/her duties to account1. The Companies Act 2006 (CA 2006) has formulated a
number of directors’ duties that are based upon the common law; however, there has
been enhancement of this framework, which has given rise to the new enhanced
shareholder value (ESV) model2. The introduction of the ESV model is integrally linked to
an attempt to increase the responsibility of directors, whilst retaining the internal
management model3. The system did not go as far as to introduce a statutory corporate
governance model, which is the route that the USA went through the Sarbannes Oxley
Act 2002 (SOX 2002). A potential problem that arises in the UK model is that it has not
gone far enough to enforce directors’ duties. A better approach may have been to
introduce an enhanced good faith obligation (as opposed to the weak reference in the CA
2006) and then provide the American-Style business judgment rule defence. The purpose
of this research is to examine directors’ duties under the CA 2006, in order to ascertain
whether they are fairly holding the director to account. The introduction of the business
judgment rule is giving the director an additional defence but this defence is only
appropriate when the directors’ duties have been developed to ensure that there is a high
level of liability present4. MacMillan identifies that:
“The business judgment rule ensures that decisions made by directors in good
faith are protected even though, in retrospect, the decisions prove to be unsound
or erroneous. It provides a deference to prevent courts from second-guessing
business decisions that were made in good faith”5.
There is a link to the concept of good faith is present within English law under the CA
2006’s director’s duties, although there is the fundamental problem that arises in the fact
there has been a failure to develop these principles into an effective model of ESV6. The
current model does not hold the director to account sufficiently, although in abstract the
CA 2006 could7. The next issue that one has to be consider is how the courts need to
interpret director’s duties, in order to increase liability because this was the purpose of
the CA 20068. This would need to be coupled with the business judgment defence
Parker, H. “Directors' Duties Under the Companies Act 2006: Clarity or Confusion?” (2013) 13
Journal of Corporate Legal Studies 1, 5
2
Keay, A The Enlightened Shareholder Value Principle and Corporate Governance (Routledge,
2012), 230
3
Ibid, 230
4
MacMillan, L “The Business Judgment Rule as an Immunity Doctrine” (2013) William and Mary
Business Law Review 4(521), 524
5
Ibid, 526-527
6
Keay (n2), 230
7
Ibid, 231
8
Ibid, 231
1
because there may be instances of a good faith decision that turns out to be a breach of
director’s duties9. Thus, the defence applies to prevent an injustice10.
This research argues that a better approach to achieving the ESV envisaged by the CA
2006 is to increase the threshold for escaping liability for breach of director’s duties (i.e.
enhancing the good faith application) and then applying the business judgment defence.
This paper will examine the nature of director’s duties under the CA 2006, the effect of
the English common law and then compare it to the approach taken in the American
common law where good faith and the business judgment rule operates.
1.2 Aim and Objectives:
The aim of this research is to evaluate whether American-Style enhanced director’s duties
based upon good faith coupled with the business judgment rule should be implemented
into UK company law. To meet this aim, this research will:
(1) Examine the nature of company law within the Anglo-common law system;
(2) Examine the nature of directors’ duties within English law, considering both the
common law and new statutory system under the CA 2006;
(3) Examine directors’ duties in the American common law and the operation of the
business judgment rule;
(4) Analyse whether American style directors’ duties and the business judgment rule
should be implemented into UK company law.
1.3 Methodology:
This research will undertake a comparative case law study of English and American
approaches to the application of directors’ duties. The purpose of the comparative study
is to ascertain whether it is possible to implement the American model in the UK11, whilst
bearing in mind whether the American model is in fact an improvement on the current
approach within the CA 2006. The American model provides a good case study country
because its roots are in the English common law, which means that the same basic legal
culture is present that enables the UK model to lend from the American model (and vice
versa)12. The fundamentals to validate a comparative legal approach is present. Although
a case law review is at the centre of this comparative study, it will not be focusing upon a
purely black letter law approach13. Instead a purposive approach has to take place14,
especially when the CA 2006 does enhance directors’ duties but the case law does not
necessarily reflect this. Therefore, a comprehensive and purposive application of the law
9
MacMillan (n4), 524
Ibid, 524
11
Zweigert, K and Kotz, H An Introduction to Comparative Law (trans Tony Weir) (3rd Edition,
OUP, 1988), 40
12
Nelken, D “Culture, Legal” in Clark, DS. (ed.) Encyclopedia of Law and Society: American and
Global Perspective (Sage, 2007), 369
13
Hill, DK “Law School, Legal Education and the Black Letter Law Student” (1986) 12 T
Marshall Law Review 557, 452
14
Zweigert, & Kotz (n11), 40
10
will take place, in order to determine whether there has to be further reform of directors’
duties and the implementation of the business judgment rule in the UK.
1.4 Chapter Synopsis:
This research will consist of four chapters, which are as follows:
Chapter 2.0: This chapter will examine the nature of company law within the Anglocommon law system, which underpins both English and American model. The Anglocommon law model of corporate governance relies upon the indoor management rule,
which focuses on the autonomy of the company contract. The divergences of the US and
UK approaches will be briefly touched upon.
Chapter 3.0: This chapter will examine directors’ duties within the CA 2006 and the
common law development. The purpose of this chapter is to explore the traditional
approach to directors’ duties and then engage with the ESV model that the CA 2006
duties are meant to embrace. Two questions will be raised, which are: (i) has the ESV
model been achieved; and (ii) does there have to be further enhancement of directors’
duties.
Chapter 4.0: This chapter will explore American common law directors’ duties and
compare them to the English approach, as identified in Chapter 3.0. The discussion will
focus on the different approaches to good faith within the context of directors’ duties, in
order to highlight how the American common law provides a more enhanced obligation.
Then it applies the business judgment rule to soften the effect of the enhanced duties.
Thus, this chapter will conclude by considering whether the American approach to
directors’ duties with the business judgment rule should be implemented into UK company
law.
Chapter 5.0: This chapter will conclude with a concise summary of findings and
recommendations that answer the question whether there should be a good faith
enhancement of directors’ duties and the introduction of the business judgment rule in the
CA 2006.
2.0 The Anglo-Common Law Roots of Corporate Governance – The Indoor
Management Rule:
2.1 The Internal Management Rule – An Overview:
The indoor management rule is at the centre of the English common law model where the
primary concern is that the company is governed by itself with little intervention by the
courts/legal framework15. This means that any legal framework has to be based upon the
general premise of supporting the company contract, although there is a valid concept of
promoting sustainability in maintaining the company within a framework of national
standards16. Kraakman et al identify that within the Anglo-common law model, “the
primary corporate governance issue is considered to be ameliorating managerial agency
costs rather than limiting self-dealing by major shareholders”17. This means that the
primary concern of company law is to promote self-governance and policing by the
shareholder body by ensuring that minimum standards of corporate governance are met.
The exact implementation of this self-dealing varies because English law retains the
voluntary code18, whilst the USA applies a legislative approach under the Sarbannes
Oxley Act 2002 (SOX) and stakeholder legislation19. This research is not going into the
fine difference between the legislative and voluntary responses to corporate governance.
The main principle that has to be borne in mind is that corporate governance is based
upon internal management where the law supports the minimum standards that are owed
to the company.
2.2 The Internal Manager – The Director:
The director is the internal manager of the company who is governed by the company
contract (Articles of Association and any other constitutional agreement) and decisions of
the voting body (i.e. shareholders)20. This integrative model stems from the theory of
Adam Smith, which provides that:
“The directors of such companies, however, being the managers rather of other
people’s money than of their own, it cannot well be expected, that they should
watch over it with the same anxious vigilance with which the partners in a private
copartnery frequently watch over their own… Negligence and profusion, therefore,
.Armour, J, B.S. Black, B.R .Cheffins and R. Nolan, ‘Private Enforcement of Corporate Law:
An Empirical Comparison of the UK and the US’ (2009) 6 Journal of Empirical Legal Studies
687
16
Parker, H. “Directors' Duties Under the Companies Act 2006: Clarity or Confusion?” (2013) 13
Journal of Corporate Legal Studies 1, 5
17
Armour (n4) 690
18
.Armour, ‘Enforcement Strategies in UK Corporate Governance: A Roadmap and Empirical
Assessment’; in J Armour and J Payne (eds), Rationality in Company Law (Oxford: Hart
Publishing 2009) copy available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1133542
accessed June 25, 2015, 5
19
Mallen, C Corporate Governance (3rd Ed, OUP, 2009), 10
20
French , D, Mayson, S and Ryan, C Mayson Ryan and French on Company Law, (OUP,
2010) 89
15
must always prevail, more or less, in the management of the affairs of such a
company”21.
The general premise of the Smithian model is that a self-interested person is the best
person to be involved in the policing and managing of the company22. This means that
the shareholder manager is the most appropriate party to promote the best interests of
the company23, because if there is mismanagement there will be an economic effect on
the company’s bottom line24. This has proven not to be entirely the case of the most
modern version of the Cadbury Code in the UK (i.e. the Corporate Governance Code
2012 (2012 Code)), which retains the comply and explain approach whilst introducing a
number of minimum expectations that should be followed by directors to have a
sustainably managed company.
2.3 The Indoor Management Rule, Corporate Governance Codes and Directors’ Duties:
The 2012 Code provides that the “comply or explain” approach is the trademark of
corporate governance in the UK. It has been in operation since the Code’s beginnings
and is the foundation of the Code’s flexibility”25. This means that the flexibility of the model
will retain the internal management model but the 2012 Code provides best practice 26.
The SOX application of the USA applies a similar model but it is enshrined in a statutory
duty as opposed a code of best practice. The fundamental common law principle of
internal management is identified in the case of Shaw & Sons v Shaw27where the
management of the company is undertaken by the directors appointed in the company
constitution, which is then policed by the shareholders through voting rights. Thus, for this
model to operate effectively it is necessary that there is effective and proactive policing
by the shareholder body, which is less prevalent due to the nature of large companies
becoming dispersed with institutional investors becoming representative of mass
shareholder units28. The result of this is that shareholder governance is becoming more
of a myth because the individual shareholder may not effectively exercise their rights29,
which enables the potential for abuse by directors and the majority because the opposing
voice may not be heard30 or there is such a dispersion that there is a lack of knowledge
of wrongdoing because there is not a direct check and balance as seen the Enron
21
Smith, A (1776) The Wealth of Nations (Digireads, 2004) 439
Carrillo, E “Corporate Governance: Shareholders’ Interests and other Stakeholders’
Interests”, (2007) Corporate Ownership and Control 4, 98
23
Jensen, M. and Meckling, W. “Theory of the firm managerial behaviour, agency costs and
ownership structure”, (1976), Journal of Financial Economics, 32(305), 359
24
Eisenberg, M ‘The divergent standards of conduct and standards of review in corporate law’
(1993) 62 Fordham Law Review. 438, 440
25
Financial Reporting Council The UK Corporate Governance Code September 2013, 4 (2012
Code)
26
Stokes, M “Company and Legal Theory” in Twining W Legal Theory and the Common Law
(Basil-Blackwell, 1986), 163
27
Shaw & Sons (Salford) Ltd v Shaw [1935]2 K.B. 113
28
Bebchuk, LA “The Case for Increasing Shareholder Power” (2005) Harvard Law Review
118(833), 885
29
Nolan, RC ‘The Continuing Evolution of Shareholder Governance’, (2006) 65 Cambridge Law
Journal 92, 93
30
Moore, MT Corporate Governance in the Shadow of the State (Hart, 2013), 273
22
scandal31. Thus, the development of prudent legal principles, in order to ensure that there
is an effective policing model in place within the context of the internal management rule.
The CA 2006 and SOX 2002 are examples of implementing legislation to bolster director
liability within international law by adding additional tools to counter the dispersing of
shareholder power. Friedman argues that:
“There is one and only one social responsibility of business--to use its resources
and engage in activities designed to increase its profits so long as it stays within
the rules of the game, which is to say, engages in open and free competition
without deception or fraud"32.
The implication is that the director has a broad latitude in his/her management of the
company, as long as he is acting within the scope of the company’s constitution and is
promoting the success of the company33. The main problem is that without an affective
check and balance through shareholder policing then the internal management model
can fail34. Thus, the introduction of corporate governance codes (or laws in the USA) were
implemented to raise standards.
2.4 The 2012 Code, Internal Management – The Need for Further Implementation:
The Cadbury Code identified that “corporate governance cannot be achieved by
structures and rules alone. They... encourage and support good governance, but what
counts are the ways in which they are put to use”35, as long as coupled with responsible
directors. The common law was identified as being insufficient, which resulted in the
evolution of the Cadbury Code to the 2012 Code and the implementation of enhanced
directors’ duties under the CA 2006. The 2012 Code provides that there has to be
promotion of five core requirements for sustainability, which are: leadership,
effectiveness, accountability, remuneration and relations with shareholders36. The
lynchpin of sustainable company management are the application of directors’ duties that
promote responsibility. The 2012 Code supports this principle but identifies additional
principles that directors and companies should follow to promote the success of the
company.
Principle A1 of the 2012 Code states:
Li, Y "The Case Analysis of the Scandal of Enron” (2010) International Journal of Business
and Management 5(37), 37
32
Friedman, M. “The Social Responsibility of Business is to Increase its Profits” (1970)The New
York Times Magazine (September 13)
33
Bloomfield, S Theory and Practice of Corporate Governance: An Integrated Approach (CUP,
2013), 203
34
La Porta, Rafael & Lopez-de-Silanes, Florencio & Schleifer, Andrei & Vishny, Robert,
"Investor Protection and Corporate Governance," (2001) Working Paper Series rwp01-017,
Harvard University, John F. Kennedy School of Government, 15
35
Cadbury Report of the Committee on the Financial Aspects of Corporate Governance,
December 1992, para. 3.13.`
36
Financial Reporting Council, (n25), 6-7
31
“Every company should be headed by an effective board which is collectively
responsible for the long-term success of the company”37.
The long-term success of the company requires the directors to consider the role of
shareholders and other parties that are essential to the effective management of the
company38. This means it builds upon the CA 2006 reforms, which emanates from the
Law Commission’s Company Law Review in 2000, which provided that success requires
“proper balanced view of the short and long term; the need to sustain effective ongoing
relationships with employees, customers, suppliers and others”39. The directors’ duties
in the CA 2006 enshrines this principle through extending the application of tem where
company success includes more normative concepts, such as reputation as opposed to
merely the bottom line. Nonetheless, the traditional principles of company success and
the bottom line has been retained within the case law, even after the implementation of
the CA 200640. The inference is that it is necessary to heighten these directors’ duties
further, which is what is being suggested within this research whilst adding the business
judgment rule.
The UK has adopted a mixed statutory and voluntary model, in order to promote good
company governance. For example, it was recognised that the traditional shareholderdirector relationship has changed, which means that there has to be added safeguards.
One such example is Principle A4 of the 2012 Code, which provides that “non-executive
directors should constructively challenge and help develop proposals on strategy”41. This
means that non-interested directors has been introduced to provide an objective monitor.
This monitor can help to achieve Principle E4 of the 2012 Code, which identifies that:
“There should be a dialogue with shareholders based on the mutual understanding
of objectives. The board as a whole has responsibility for ensuring that a
satisfactory dialogue with shareholders takes place”42.
This dialogue is essential to promote shareholder policing, which is at the centre of the
internal management model. The fundamental problem is that this model may not have
the correct balance between the statutory and voluntary elements of a modern internal
management model. The ESV model that the CA 2006 may have the potential of
achieving this aim, but there has to be examination of the application of these duties to
determine whether further reform is required. This research is going to engage with
directors’ duties under English law and then move on to the American model.
37
Ibid, 8
Ibid, 8
39
Company Law Review, Modern Company Law for a Competitive Economy, Developing the
Framework (DTI, 2000), para 2.19
40
Re West Coast Capital (LIOS) Ltd (2008) CSOH 72; Cobden Investments Ltd v RWM
Langport Ltd (2008) EWHC 2810 (Ch)
41
Financial Reporting Council, (n25(, 10
42
Ibid, 24
38
3.0 Directors’ Duties under the CA 2006 and the English Common Law:
3.1 The Basis of Director’s Duties:
Directors’ duties are fundamental to the indoor management rule because they are the
check and balance to the power that the director has. The power of the director can be
linked to the majority or certain elements of the shareholder body to create self-interested
allegiances that may result in oppression of the minority and undermine the sustainability
of the company43. This means that the role of directors’ duties are important to ensure
that such actions do not take place. This means that the court should have sufficient
direction to uphold directors’ duties. If this is lacking then there will not be a balance
between internal management and prudent legislation that is capable of providing the
sufficient safeguards that are capable of preventing abuse of director power. Wan argues
that:
“The court should scrutinise the decision-making process of the board to ensure
that the board considers the stakeholders’ interests and that the board acts fairly
in considering the long-term and short-term shareholders’ interests”44.
The fundamental problem that arises is that the internal management model relies upon
minimal intervention by the law, which means that the balance between intervention and
internal management is paramount. The basis of the English and American directors’
duties have the same foundations, which is identified by Eisenberg as a “standard of "care
that an ordinarily prudent person would reasonably be expected to exercise in a like
position and under similar circumstances"45. This standard of care is “both subjective and
objective. The director or officer must subjectively believe that his conduct is in the best
interests of the corporation, and that belief must be objectively reasonable”46. This means
that if the prudent person would not act in a similar manner then it is unreasonable and
there is a breach of directors’ duties if the intention is associated with either a willful or
reckless act47. The CA 2006 has attempted to find this balance through the ESV model;
nevertheless, the problem is that this standard may not have been met due to the courts
failing to apply a purposive approach to the enhanced directors’ duties.
3.2 Who is the Director?
If the internal management model is to be effective then it is necessary to implement
legislation that creates an effective check on the power of directors. The ESV model of
the CA 2006 has taken this aboard and extended the definition of a director. There are
two potential director groups, which are: (i) those individuals that are named in the
company’s constitution; and (ii) individuals that have the control or power to influence the
management of the company (i.e. a de facto/shadow director). The first group is linked to
the constitutional framework under s. 33 CA 2006 and confirmed in s. 250 CA 2006. The
Wan, WY “Takeovers and Countering Short-termism in Target Boardrooms: Part 1” (2013)
Company Lawyer 34(43), 43
44
Ibid, 68
45
Eisenberg, M ‘The divergent standards of conduct and standards of review in corporate law’
(1993) 62 Fordham Law Review. 438, 440
46
ibid, 440
47
Ibid, 440
43
second group has been recognised in s. 251 CA 2006, which provides “in the Companies
Acts “shadow director”, in relation to a company, means a person in accordance with
whose directions or instructions the directors of the company are accustomed to act” 48.
The statutory recognition of shadow/de facto directors is an important development
because it means that there is an extension of the statutory directors’ duties to these
individuals, which confirms the common law principle that a controlling shareholder that
influences the management of the company will be treated as a director 49. A shadow
director will be identified either through direct or implied used of power 50. Power can be
held by a shareholder where there is a history of deference to the individual that is
maintained51. The primary question that is asked is whether there is a person outside of
the board that has equal or more power than the directors named in the company
constitution52. The flexible principles that surround who is a director illustrates that the
courts will take a purposive approach to identify who has controlling power in the
company, even if s/he is not named in the company constitution. The implication is that
the myth of the common law merely respecting the company constitution is not strictly
true, which indicate that there are ways to challenge the sanctity of the company contract
when it is reasonable to do so.
3.3 Directors’ Duties – An Evolution:
The fundamental principle is that the director has to act reasonably within the powers
provided for in the constitution, in order to promote the best interests of the company53.
There will not be liability for a bad decision, as long as the director has acted in a manner
where it can be reasonably shown that his/her actions were grounded on promoting the
best interests of the company54. The fundamental problem is to ascertain what is in the
“best interests” of the company (i.e. should it be based upon the bottom line or is there a
need to consider a broader set of interests55). The traditional interpretation has been
linked to the bottom line and following the direction of the majority56. The problem with
this application is that it can result in the marginalisation of the minority and the
sustainability of the company can be sacrificed for the bottom line57. The introduction of
the CA 2006 was to clarify directors’ duties, in order to promote sustainability within the
management of the company58. The following section is going to examine these duties
and how they emanate out of the existing common law.
48
S. 251(1) CA 2006
Bushell v Faith [1969] 1 All ER 1002
50
Secretary of State for Trade and Industry v Devrell [2000] 2 WLR 9070
51
Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1990] BCC 567
52
Re Hydrodan (Corby) Ltd [1994] BCC 161
53
Riley, CA ‘The Director’s Duty of Care and Skill: The Case For an Onerous But Subjective
Standard’ (1999) Modern Law Review 697, 697-8
54
Ibid, 698
55
Reisberg, A ‘Shadows of the Past and Back to the Future: Part 11 of the UK Companies Act
2006 (in)action’ (2009) 6 European and Company Financial Law Review 219, 221
56
Ibid, 221
57
Ibid, 222
58
Ibid, 222
49
Section 170 provides that the existing directors’ duties are not to replace the common
law; rather there is meant to be enhancement of the common law through codification. As
s. 170(3) CA 2006 provides:
“The general duties are based on certain common law rules and equitable principles
as they apply in relation to directors and have effect in place of those rules and
principles as regards the duties owed to a company by a director”.
This means that the common law remains the source of interpreting the directors’ duties
set out in ss. 171 to 177 CA 2006, which means that there may be little effect of the ESV
model if the common law is not approached with purposive interpretation by the courts 59.
The primacy of the deference to the company constitution and consequently the majority
rule principle within the common law is retained in s. 171 CA 2006. Section 171 CA 2006
provides that a director must: “(a) within the powers that have been given through the
company’s constitution; and (b) exercise these powers within the limits prescribed by the
constitution”60. This requirement is necessary to the internal management rule; however,
the problem that arises is that without greater direction whether there should be an
enhanced examination of the sustainability of the company then the enhancement of
directors’ duties has not occurred.
Probably one of the most important sections on directors’ duties is s. 172 CA 2006
because it provides that the director “must act in the way he considers, in good faith,
would be most likely to promote the success of the company for the benefit of its members
as a whole”61. The use of this terminology could be broadly interpreted. Nonetheless, the
fundamental problem that occurs is the terminology seems to be retaining the highly
traditionalist approach set out in the common law. The traditional standard that is owed
by the directors’ duties is set out in the seminal case of Aberdeen Railway Co v Blaikie
Brothers62, which held that:
•
“A corporate body can only act by agents, and it is of course the duty of those
agents so to act as best to promote the interests of the corporation whose affairs
they are conducting”63.
The fact that s. 172 CA 2006 starts with the traditionalist internal management framework
does seem to support the critics of the codification of directors’ duties for failing to meet
the ESV that was envisaged64. This seems to be confirmed in Re West Coast Capital
(LIOS) Ltd65 and Cobden Investments Ltd v RWM Langport Ltd66 where the traditionalist
view set out in Aberdeen Railway Co v Blaikie Brothers was maintained. Consequently,
there seems to have been little difference in the interpretation of directors’ duties because
the duty to promote the success of the company remains the primary obligation owed.
Nevertheless, s. 172 CA 2006 has been enhanced by what factors should be considered
59
Ibid, 222
S. 171 CA 2006
61
S. 172(1) CA 2006
62
Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461
63
Ibid 471
64
Reisberg (n55), 222
65
Re West Coast Capital (LIOS) Ltd (2008) CSOH 72
66
Cobden Investments Ltd v RWM Langport Ltd (2008) EWHC 2810 (Ch).
60
by the directors when considering what is in the best interests of the company. These
factors include: (i) the examination of the long term effects of a decision67; (ii) what is in
the interests of the employees68; (iii) how to foster relationships with suppliers, customers
and other business interests69; (iv) to evaluate how a decision by a company will affect
the environment and local communities70; (v) whether the decision will uphold the
reputation of the company, including maintaining industry standards of good corporate
governance and social responsibility71; and (vi) to ascertain whether the decision will be
fair to all members (shareholders) of the company72. The application of this section is not
expected to be an exhaustive list of duties; rather, it is to identify that there are a broad
set of considerations with every decision that the company makes. Nonetheless, it needs
to be reiterated that the primary concern is the best interests of the company as identified
in Re West Coast Capital (LIOS) Ltd73 and Cobden Investments Ltd v RWM Langport
Ltd74 that links to the bottom line. Thus, it is unlikely that the other issues that are
contained within s. 172 CA 2006 will be treated as the primary interest if it can be shown
that the decision is promoting the majority financial interests and the bottom line of the
company.
3.4 Directors’ Duties – Merely a Reiteration of the Common Law:
The concept of enhancing directors’ duties through the codification of the common law is
unlikely to promote more sustainable directors if there is a failure to promote the
considerations of s. 172 CA 2006 above and beyond the bottom line 75. The obligation of
the director is to promote the best interest interests of the company by exercising
independent judgment utilising the powers given to the director within the company’s
constitution76. The standard that this owed is set out in s. 174 CA 2006. The preliminary
obligation is set out in s. 174(1) CA 2006, which is that “a director of a company must
exercise reasonable care, skill and diligence”. This standard represents the obligation
linked to promoting the best interests of the company because this level of skill must be
used77. Section 174(2) CA goes on to clarify what is meant by reasonable care, skill and
diligence where it is held that:
“This means the care, skill and diligence that would be exercised by a reasonably
diligent person with— (a)the general knowledge, skill and experience that may
reasonably be expected of a person carrying out the functions carried out by the
director in relation to the company, and (b)the general knowledge, skill and
experience that the director has”.
67
s. 172(1)(a) CA 2006
s. 172(1)(b) CA 2006
69
s. 172(1)(c) CA 2006
70
s. 172(1)(d) CA 2006
71
s. 172(1)(e) CA 2006
72
s. 172(1)(f) CA 2006
73
Re West Coast Capital (LIOS) Ltd (2008) CSOH 72
74
Cobden Investments Ltd v RWM Langport Ltd (2008) EWHC 2810 (Ch).
75
Reisberg (n55), 222-3
76
S. 173 CA 2006
77
Lister v Romford Ice and Cold Storage Co. Ltd [1957] A.C. 555
68
The operation of s. 174(2) CA 2006 identifies that there is both an objective and subjective
standard, which makes sense because a legal or financial director should have
heightened obligations due to the level of knowledge and skill that s/he has 78. The
common law will allow for the director to delegate his/her duties, as long as it has been
done in a reasonable manner79. The standard has been set in Re City Equitable Fire
Insurance Co. Ltd80, which has a low threshold to be satisfied. This indicates that as long
as the director is generally acting in a reasonable manner with the intention to promote
the best interests of the company then there will not be a breach of directors’ duties.
Nonetheless, the case law does indicate that each case will be determined on its facts
although the standard set in Re City Equitable Fire Insurance Co. Ltd81 remains the
accepted obligation owed by the director82. The use of reasonableness as the way to find
liability indicates that the business judgment rule could be present within English law but
it has to be breached for liability to be found, which means that it will be very difficult to
show that there has been a breach of directors’ duties unless the actions of the director
is absurd.
The remaining sections further clarify the common law standards seem to apply to the
tests set out in ss. 172-174 CA 2006. Section 175 CA 2006 provides that “a director of a
company must avoid a situation in which he has, or can have, a direct or indirect interest
that conflicts, or possibly may conflict, with the interests of the company” 83 unless
authorisation has been given by the board to undertake the disclosed duties84. All votes
that are taken on authorisation has to take place without that of the interested director 85.
The conflict of interest will be any contract/activity that will be competing with the business
purpose of the company and/or reasonable restrictions identified in the company contract
because there is a duty of loyalty owed by each director86. It is also important to stress
that authorisation does not have to be formal; rather it is possible for acceptance of
potentially conflicting actions will be allowed as long as appropriately disclosed 87. The
main concern is to show that the director has not acted in a conflictual manner that
undermines the best interests of the company88. It is the conflict of interest standard that
gives rise to the duty not to accept benefits from third parties when related to activities of
an individual is acting in his/her capacity as a director89. Thus, the duties that have been
developed in the CA 2006 are merely a codification and arguably a clarification of
common law duties, which potentially will maintain the status quo (as identified in Re West
78
Keay (n2), 234
Re D'Jan of London Ltd [1994] 1 B.C.L.C. 561, CA; Cohen v Selby [2001] 1 BCLC 176, CA
80
Re City Equitable Fire Insurance Co. Ltd [1925] Ch. 407
81
ibid
82
Equitable Life Assurance Society v Bowley [2004] 1 B.C.L.C. 180; Re Barings plc (No. 5)
[2000] 1 B.C.L.C. 523
83
S. 175(1) CA 2006
84
S. 175(5) CA 2006
85
S. 175(6) CA 2006
86
Item Software (UK) Ltd v. Fassihi [2005] 2 B.C.L.C. 91
87
Murad v Al-Saraj [2005] EWCA Civ 959; Foster v Bryant [2007] Bus LR 1565
88
Edwards v Halliwell [1950] 2 All ER 1064
89
S. 176(1) CA 2006
79
Coast Capital (LIOS) Ltd90 and Cobden Investments Ltd v RWM Langport Ltd91). Arguably
there has to be a change in how director’s duties are treated, in order to ensure that they
are enhanced. The response could be by making a stringent set of directors’ duties and
then applying the reasonable skill and care as a defence (i.e. the business judgement
rule).
4.0 Directors’ Duties in the USA and the Business Judgment Rule – Should they
be Implemented in the UK?
4.1 The Business Judgment Rule and the American Directors’ Duty:
The business judgment rule with heightened obligations to reinforce directors’ duties
could be introduced, instead of having to breach this rule to be held liable as in the English
model. The basis of directors’ duties in the USA are similar to that as in English law.
However, the Dodge v Ford Motor Company92 espouses this in a duty to protect the
interests of the shareholder (i.e. the best interest of the company are the interests of the
shareholders). This is a shift from the English model because there is a clear fiduciary
obligation owed by the director to the shareholder. The business judgment rule is
contained within the common law and in some states has been codified. An example of
a codified business judgment rule is in the California Corporations Code § 309(a), which
provides that:
“A director shall perform the duties of a director, including duties as a member of
any committee of the board upon which the director may serve, in good faith, in a
manner such director believes to be in the best interests of the corporation and its
shareholders and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances”.
The obligation of the director is identified in the first part of the rule where the director
must conform to the prescribed duties93. This is then followed by a defence that the
director has acted reasonably in the best interests of the company where reasonable
inquiry of a prudent person in a similar positon would have acted the same (i.e. it is a
reasonable response in a range of reasonable responses)94. Thus, it starts from liability
for breach of duty and then applies a defence, which means that it is a reverse of English
law. Additionally, there is a shareholder focus in American law that is not present in the
English common law95. This discussion is going to examine the application of the
90
Re West Coast Capital (LIOS) Ltd (2008) CSOH 72
Cobden Investments Ltd v RWM Langport Ltd (2008) EWHC 2810 (Ch).
92
Dodge v. Ford Motor Co., 170 N.W. 668 (Michigan Supreme Court, 1919)
93
Adams, MS “United States: The Director’s Friend: The Business Judgement Rule” Mondaq
Sepetember 6, 2012 available at:
http://www.mondaq.com/unitedstates/x/195214/Directors+Officers/The+Directors+Friend+The+
Business+Judgment+Rule accessed June 27, 2015
94
Ibid
95
Simpson, S & Brody, K “The Evolving Role of Special Committees in M&A Transactions:
Seeking Business Judgment Rules Protection in the Context of Controlling Shareholder
Transactions and Other Corporate Transactions Involving Conflicts of Interest” (2014) Business
Lawyer 69(1117), 1120
91
business judgment rule in US cases whilst comparing it to the approach taken in the
English common law.
The starting point to understand the business judgment rule is the seminal case of Unocal
Corporation v Mesa Petroleum96, which has been upheld in Revlon Inc v MacAndrews &
Forbes Holdings Inc97 and a series of other cases. Unocal held that the business
judgment rule is a defence to the high obligation that directors’ duties impose. As this
case held:
“If a defensive measure is to come within the ambit of the business judgment rule,
it must be reasonable in relation to the threat posed”98.
This means that a breach of duty may occur but it was a reasonable response given the
nature of the decision or it is thought to be the best approach in the given circumstances.
It is important to note that generally the fiduciary duty that the director owes is just to the
shareholder99, unless the legislature has enhanced this duty in a particular state (e.g. the
environmental obligations in Oregon100). The implication is that there is a dual duty
present to promote the best interests of the company and the interests of the
shareholders101, which means that minority as well as majority shareholder interests must
be considered. The rationale is that there is a direct claim for the shareholder that has
been harmed by the director that has breached his/her duty. Once this breach is shown
then the director can defend his/herself through the business judgment rule. Resultantly,
there are similarities between the American and English common law; however, the
burden of proof is different. The question that this research seeks to answer is whether
the American approach should be implemented into the UK, in order to solidify the ESV
model that were envisaged by the CA 2006.
4.2 A Case Law Review of the Business Judgment Rule:
This research is going to focus on the Delaware case law because it has the closest roots
to the English common law. It is not possible to examine the business judgment rule in
the USA as a whole because of the number of different systems. As VantagePoint
Venture Partners v. Examen, Inc102 held only the states “should have the authority to
regulate a corporation’s internal affairs—the state of incorporation”103. This means that it
is easier to undertake a case law review of a state. The links between Delaware and the
English common law is the fact that directors’ duties have been developed upon the
96
Unocal Corporation v Mesa Petroleum (1985) 493 A 2d 946 (Delaware Supreme Court).
Revlon Inc v MacAndrews & Forbes Holdings Inc (1986) 506 A 2d 173; See also Paramount
Communications Inc v Time Inc (1990) 571 A 2d 1140, Nixon v Blackwell (1993) 626 A 2d 1366,
Paramount Communications Inc v QVC Network Inc (1994) 637 A 2d 34, Herald Co v Seawell
(1972) 472 F 2d 1081
98
Unocal Corporation v Mesa Petroleum (1985) 493 A 2d 946 (Delaware Supreme Court), [at
pg. 955].
99
Paulman v. Kritzer, 219 N.E.2d 541, 543 (Illinois Appellate Court, 1966).
100
Sneirson, J Race to the Left: A Legislator’s Guide to Greening the Corporate Code, (2009)
Oregon Law Review, 88,498.
101101
Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995)
102
VantagePoint Venture Partners v. Examen, Inc., 871 A.2d 1108, 1112 (Del. 2005).
103
ibid
97
backbone of Charitable Corp. v. Sutton104, where directors are described as both agents
and trustees of the company and should act with “fidelity and reasonable diligence”105.
This approach was confirmed in Bodell v. General Gas & Electric Corp106. The Bodell
approach was confirmed in Cole v. Nat’l Cash Credit Ass’n107 where it was held that
fidelity and reasonable diligence are the “elemental requirements for invoking the
Delaware business judgment rule—good faith and a ‘bona fide’ purpose”108. This
approach was reaffirmed in the 1971 case of Sinclair Oil Corp. v. Levien109 where the
business judgment rule will be valid if for a valid business purpose. This was supported
in Aronson v. Lewis where the held that the business judgment rule “is a presumption
that in making a business decision the directors of a corporation acted on an informed
basis, in good faith and in the honest belief that the action was taken in the best interests
of the company110 . As Stone v. Ritter111 identifies, the director owes a duty to the
shareholders and companies that is based upon the “triad [of] due care, loyalty and good
faith”112. This triad is similar to the construction of the directors’ duties in the English
common law and under the CA 2006. In fact, the Stone Case recognised that the business
judgment rule allows for a balance when these duties compete. This seems to be very
similar to Shaw & Sons v Shaw113 where the internal management model requires that
the best interests of the company be upheld above all else.
There has been a breach of directors’ duties when the board failed to act on an informed
basis114. This links to the obligation of due skill and care set in s 174 CA 2006, which
means that there are the similarities to import the American model into the UK. This can
also be seen in Guth v. Loft115 where it was held that “corporate officers and directors are
not permitted to use their position of trust and confidence to further their private
interests”116. This means that the conflict of interest obligation in the US model is similar
to s. 175 CA 2006, although it is identified in a strictly prohibited language. Thus, there is
a breach for acting this way and then the director can defend his/herself by showing it is
permitted. The enhancement of directors’ duties under the US model lies upon the fact
that directors are fiduciaries that have a “quasi-trustee and agency relationship” that is
owed to the company and its shareholders117. Therefore, the nature of the duty is
heightened due to the direct trustee relationship.
In fact, the business judgment rule cannot be used when there is a potential conflict of
interest, as Aronson identifies this rule “can only be claimed by disinterested directors
104
Charitable Corp. v. Sutton, 2 Atk. 400, 406, 26 Eng. Rep. 642, 645 (Ch. 1742);
ibid
106
Bodell v. Gen. Gas & Elec. Corp., 132 A. 442 (Del. Ch. 1926),
107
Cole v. Nat’l Cash Credit Ass’n, 156 A. 183, 188 (Del. Ch. 1931)
108
ibid
109
Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971)
110
Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984)
111
Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006)
112
I bid
113
Shaw & Sons (Salford) Ltd v Shaw [1935]2 K.B. 113
114
Smith v. Van Gorkom, 488 A.2d 858, 873 (Del. 1985).
115
Guth v. Loft, Inc., 5 A.2d 503 (Del. 1939)
116
ibid
117
Moran v. Household Int’l, Inc., 500 A.2d 1346, 1357 (Del. 1985)
105
whose conduct otherwise meets the tests of business judgment”118. The impact of tis is
that the directors that has been identified to be in breach of their duties have to show that
they are not on either side of the transaction or “expect to derive any personal financial
benefit from it in the sense of self-dealing, as opposed to a benefit which devolves upon
the corporation or all stockholders general”119. The presence of such an interest will mean
that the business judgment rule will not be applied120. Therefore, the benefit of this
approach is that conflict of interest is more strictly applied because it does not benefit
from the defence of the business judgment rule. Conversely, the obligation that is owed
by the director in the English common law merely requires the act to be reasonable and
promotes the company’s best interests.
The concept of good faith within US case law is also heightened. For example in re Walt
Disney Co. Derivative Litigation121 held that due care “may overlap with the conduct that
comes within the rubric of good faith in a psychological sense, but from a legal standpoint
those duties are and must remain quite distinct”122. The implication is that good faith is
not part of the obligation of skill and care, which seems to be the approach that has taken
under English law because good faith is not a standalone ground. Consequently, it may
be that the lynchpin of heightened directors; duties in the US model relies upon a
standalone obligation to act in good faith, which means that it is necessary to examine
what is meant by good faith in the ambit of directors’ duties.
The Delaware Supreme Court in Stone v. Ritter123 identified that “good faith may be
described colloquially as part of a “triad” of fiduciary duties that includes the duties of care
and loyalty, the obligation to act in good faith does not establish an independent fiduciary
duty”124. However, it goes on to identify that this colloquial approach is not in fact true
because a “director cannot act loyally towards the corporation unless she acts in the good
faith belief that her actions are in the corporation’s best interest”125. This means that the
good faith principle has to be a standalone obligation. The colloquial description is clearly
the obligation that is owed in the English common law; whereas the US duty is
heightened. The English common law approach is identified in Charitable Corp. v. Sutton
where it is held that “it is by no means just in a judge, after bad consequences have arisen
from [any exercise of] power, to say [the director] foresaw at the time what [would]
happen, and therefore were guilty of a breach of trust”126. The rationale is that a
standalone obligation of good faith cannot be applied in hindsight to hold the director to
account because a seemingly good decision became a bad one. All that needs to be
shown for a breach not to be identified is that the decision was not made in bad faith. This
may seem to be fair, but it fails to engage the potential responsibilities of the director
(especially when there is a potential harm to a certain sector of the company).
118
Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984)
ibid
120
ibid
121
Re Walt Disney Co. Derivative Litig., 906 A.2d 27, 65 (Del. 2006)
122
ibid
123
Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006)
124
ibid
125
ibid
126
Charitable Corp. v. Sutton, 2 Atk. 400, 406, 26 Eng. Rep. 642, 645 (Ch. 1742)
119
The case of Stone v Ritter illustrates that there is a distinctly different approach that is
applied in the US model. In this case the Delaware Supreme Court held that:
“In the absence of red flags, good faith in the context of oversight must be
measured by the directors’ actions ‘to assure a reasonable information and
reporting system exists’ and not by second-guessing after the occurrence of
employee conduct that results in an unintended adverse outcome”127.
The engagement with the different factors that could arise from a decision has to be
examined in full, which means that there is an obligation to ensure that a reasonable
decision has been made. Consequently, there is a higher threshold imposed upon
identifying what is expected to be a reasonable business decision as opposed to the
broad range of reasonable responses in the English common law. This distinction lies in
the fact that the director owes his/her duty not only to the company in general but also
the individual shareholders. Therefore, there are sound grounds to apply the US style
directors’ duties (especially the good faith duty that is sound alone) and then apply the
business judgement rule.
5.0 Conclusion: Should the Business Judgment be Implemented in the UK?
The Delaware Supreme Court in Aronson v. Lewis identified that the operation of the
business judgement rule is based upon the “presumption that in making a business
decision the directors of a corporation acted on an informed basis, in good faith and in
the honest belief that the action was taken in the best interests of the company” 128. This
means that a business decision may harm part of the shareholder body but was
necessary to promote the welfare of the company and the majority. The application of this
approach seems very similar to that of the English common law, although it is the point
to defend a breach not the threshold to prove a breach. The obligation to act in good faith
to promote the interests of the business are clearly identified in the English common
law129, although this obligation does not extend to the individual shareholder (except
through an enhanced application of s. 172 CA 2006). The operation of the good faith
principle is enhanced in the UK when there is a conflict of interest because it implies that
the intention is personal and not to promote the interests of the company130. Nonetheless,
this still does not have the effect of increasing the liability of directors. There are attempts
in the common law to recognise an enhanced duty on non-executive directors because
they are acting without self-interest. The Australian courts in Australian Securities and
Investments Commission v Healey131 identified that there is an obligation on the nonexecutive director “to take a diligent and intelligent interest in the information available to
him or her, to understand that information, and apply an enquiring mind to the
responsibilities placed upon him or her”132. The rationale of this approach is that there is
a special relationship of trust because the non-executive director has no interest in the
127
Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006)
Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984)
129
Mutual Life Insurance Co of New York v. Rank Organisation Ltd [1985] B.C.L.C. 11
130
Scottish Cooperative Wholesale Society Lttd v Meyer [1959] AC 324; Bhullar v Bhullar [2003]
EWCA Civ 424
131
Australian Securities and Investments Commission v Healey [2011] FCA 717
132
Ibid at , 20
128
company but to promote the company’s interests. This approach does not satisfy the
formation of effective directors’ duties. Rather, it is necessary to create a heightened
fiduciary duty in the UK for directors in general
The standalone duty of good faith should be developed in the UK because the fact that a
breach is difficult to prove indicates that there will not be enhancement of shareholder
value. In fact, the case of R. (on the application of People & Planet) v HM Treasury133
illustrates the problem with failing to provide a standalone duty of good faith. In this case,
the applicants wanted to get the government to enforce the RBS’ own policy that it
promoted it held in combating climate change and promoting human rights on the board
of RBS. The government has this power because of part of RBS becoming public.
However, the court held that it did not have the power to enforce this obligation because
it would be contrary to the board who are acting in their power. This argument may be
true, but the company is acting in bad faith because it is promoting a policy to its
shareholders and customers and not following it through, which is misrepresentation. This
act would be deemed as a breach of good faith in the USA because it is unreasonable to
lie. Therefore, it seems that it is necessary to implement the US’ heightened directors’
duties but to provide the business judgment rule to prevent liability when there has been
a truly reasonable set of actions. The benefit of this approach is that it will create a more
onerous duty of care, which is necessary to ensure that there is truly an ESV model in the
UK.
The development of an ESV model was envisaged when the CA 2006’s directors’ duties
were implemented. The fundamental problem that arose is that this has not been the case
because the threshold to show that there is a breach is set to high. The main problem in
the English model is that the business judgment defence is not a defence; rather, it is the
standard to prove that there has not been a breach of directors’ duties. Consequently, the
English model’s liability for breach of duty is too easy to avoid, which is supported by the
fact that there is no standalone duty of good faith. It is argued that the US model should
be implemented where there is a standalone duty of good faith and breach of duty can be
proven with a lower threshold. However, the business judgment rule operates as a
defence when there has been a breach of duty, but the action is in good faith and was
considered to be reasonable in the given circumstances. These changes will create a
system where there is ESV, but in order for the US model to be effectively implemented
in the UK it is necessary that a standalone duty of good faith is accepted. This will be the
greatest obstacle to the proposed reform. Nonetheless, it is necessary to create the ESV
model that was envisaged in the CA 2006’s directors’ duty reform.
133
R (on the application of People & Planet) v HM Treasury [2009] EWHC 3020 (Admin).
References:
Adams, MS “United States: The Director’s Friend: The Business Judgement Rule”
Mondaq
Sepetember
6,
2012
available
at:
http://www.mondaq.com/unitedstates/x/195214/Directors+Officers/The+Directors+Frien
d+The+Business+Judgment+Rule accessed June 27, 2015
Armour, ‘Enforcement Strategies in UK Corporate Governance: A Roadmap and
Empirical Assessment’; in J Armour and J Payne (eds), Rationality in Company Law
(Oxford:
Hart
Publishing
2009)
copy
available
at:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1133542 accessed June 25, 2015
Armour, J, B.S. Black, B.R .Cheffins and R. Nolan, ‘Private Enforcement of Corporate
Law: An Empirical Comparison of the UK and the US’ (2009) 6 Journal of Empirical Legal
Studies 687
Bebchuk, LA “The Case for Increasing Shareholder Power” (2005) Harvard Law Review
118(833)
Bloomfield, S Theory and Practice of Corporate Governance: An Integrated Approach
(CUP, 2013)
Cadbury Report Report of the Committee on the Financial Aspects of Corporate
Governance, December 1992
Carrillo, E “Corporate Governance: Shareholders’ Interests and other Stakeholders’
Interests”, (2007) Corporate Ownership and Control 4
Company Law Review, Modern Company Law for a Competitive Economy, Developing
the Framework (DTI, 2000),
Eisenberg, M ‘The divergent standards of conduct and standards of review in corporate
law’ (1993) 62 Fordham Law Review. 438
Eisenberg, M ‘The divergent standards of conduct and standards of review in corporate
law’ (1993) 62 Fordham Law Review. 438
Financial Reporting Council The UK Corporate Governance Code September 2013, 4
(2012 Code)
French , D, Mayson, S and Ryan, C Mayson Ryan and French on Company Law, (OUP,
2010)
Friedman, M. “The Social Responsibility of Business is to Increase its Profits” (1970)The
New York Times Magazine (September 13)
Hill, DK “Law School, Legal Education and the Black Letter Law Student” (1986) 12 T
Marshall Law Review 557
Jensen, M. and Meckling, W. “Theory of the firm managerial behaviour, agency costs and
Keay, A The Enlightened Shareholder Value Principle and Corporate Governance
(Routledge, 2012)
La Porta, Rafael & Lopez-de-Silanes, Florencio & Schleifer, Andrei & Vishny, Robert,
"Investor Protection and Corporate Governance," (2001) Working Paper Series rwp01017, Harvard University, John F. Kennedy School of Government
Li, Y "The Case Analysis of the Scandal of Enron” (2010) International Journal of
Business and Management 5(37)
MacMillan, L “The Business Judgment Rule as an Immunity Doctrine” (2013) William and
Mary Business Law Review 4(521)
Mallen, C Corporate Governance (3rd Ed, OUP, 2009)
Moore, MT Corporate Governance in the Shadow of the State (Hart, 2013)
Nelken, D “Culture, Legal” in Clark, DS. (ed.) Encyclopedia of Law and Society: American
and Global Perspective (Sage, 2007)
Nolan, RC ‘The Continuing Evolution of Shareholder Governance’, (2006) 65 Cambridge
Law Journal 92
ownership structure”, (1976), Journal of Financial Economics, 32(305)
Parker, H. “Directors' Duties Under the Companies Act 2006: Clarity or Confusion?”
(2013) 13 Journal of Corporate Legal Studies 1
Parker, H. “Directors' Duties Under the Companies Act 2006: Clarity or Confusion?”
(2013) 13 Journal of Corporate Legal Studies 1
Reisberg, A ‘Shadows of the Past and Back to the Future: Part 11 of the UK Companies
Act 2006 (in)action’ (2009) 6 European and Company Financial Law Review 21
Riley, CA ‘The Director’s Duty of Care and Skill: The Case For an Onerous But Subjective
Standard’ (1999) Modern Law Review 697
Simpson, S & Brody, K “The Evolving Role of Special Committees in M&A Transactions:
Seeking Business Judgment Rules Protection in the Context of Controlling Shareholder
Transactions and Other Corporate Transactions Involving Conflicts of Interest” (2014)
Business Lawyer 69(1117)
Smith, A (1776) The Wealth of Nations (Digireads, 2004)
Sneirson, J Race to the Left: A Legislator’s Guide to Greening the Corporate Code, (2009)
Oregon Law Review, 88
Stokes, M “Company and Legal Theory” in Twining W Legal Theory and the Common
Law (Basil-Blackwell, 1986)
Wan, WY “Takeovers and Countering Short-termism in Target Boardrooms: Part 1” (2013)
Company Lawyer 34(43)
Zweigert, K and Kotz, H An Introduction to Comparative Law (trans Tony Weir) (3rd
Edition, OUP, 1988)
Cases:
Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461
Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984)
Australian Securities and Investments Commission v Healey [2011] FCA 717
Bhullar v Bhullar [2003] EWCA Civ 424
Bodell v. Gen. Gas & Elec. Corp., 132 A. 442 (Del. Ch. 1926),
Bushell v Faith [1969] 1 All ER 1002
Charitable Corp. v. Sutton, 2 Atk. 400, 406, 26 Eng. Rep. 642, 645 (Ch. 1742);
Charitable Corp. v. Sutton, 2 Atk. 400, 406, 26 Eng. Rep. 642, 645 (Ch. 1742)
Cobden Investments Ltd v RWM Langport Ltd (2008) EWHC 2810 (Ch).
Cohen v Selby [2001] 1 BCLC 176, CA
Cole v. Nat’l Cash Credit Ass’n, 156 A. 183, 188 (Del. Ch. 1931)
Dodge v. Ford Motor Co., 170 N.W. 668 (Michigan Supreme Court, 1919)
Edwards v Halliwell [1950] 2 All ER 1064
Equitable Life Assurance Society v Bowley [2004] 1 B.C.L.C. 180
Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995)
Foster v Bryant [2007] Bus LR 1565
Guth v. Loft, Inc., 5 A.2d 503 (Del. 1939)
Herald Co v Seawell (1972) 472 F 2d 1081
Item Software (UK) Ltd v. Fassihi [2005] 2 B.C.L.C. 91
Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1990] BCC 567
Lister v Romford Ice and Cold Storage Co. Ltd [1957] A.C. 555
Moran v. Household Int’l, Inc., 500 A.2d 1346, 1357 (Del. 1985)
Murad v Al-Saraj [2005] EWCA Civ 959
Mutual Life Insurance Co of New York v. Rank Organisation Ltd [1985] B.C.L.C. 11
Nixon v Blackwell (1993) 626 A 2d 136
Paramount Communications Inc v QVC Network Inc (1994) 637 A 2d 34
Paramount Communications Inc v Time Inc (1990) 571 A 2d 1140
Paulman v. Kritzer, 219 N.E.2d 541, 543 (Illinois Appellate Court, 1966).
R (on the application of People & Planet) v HM Treasury [2009] EWHC 3020 (Admin).
Re City Equitable Fire Insurance Co. Ltd [1925] Ch. 407
Re D'Jan of London Ltd [1994] 1 B.C.L.C. 561, CA
Re Hydrodan (Corby) Ltd [1994] BCC 161
Re Walt Disney Co. Derivative Litig., 906 A.2d 27, 65 (Del. 2006)
Re West Coast Capital (LIOS) Ltd (2008) CSOH 72
Revlon Inc v MacAndrews & Forbes Holdings Inc (1986) 506 A 2d 173
Scottish Cooperative Wholesale Society Lttd v Meyer [1959] AC 324
Secretary of State for Trade and Industry v Devrell [2000] 2 WLR 9070
Shaw & Sons (Salford) Ltd v Shaw [1935]2 K.B. 113
Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971)
Smith v. Van Gorkom, 488 A.2d 858, 873 (Del. 1985).
Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006)
Unocal Corporation v Mesa Petroleum (1985) 493 A 2d 946 (Delaware Supreme Court).
VantagePoint Venture Partners v. Examen, Inc., 871 A.2d 1108, 1112 (Del. 2005).