Does the directors' fiduciary duty to act in the best interests of the company undermine other stakeholders' interests? : a comparative assessment of corporate sustainability

• Main Author: Hamadziripi, Friedrich
• Format: Others
• Language: English
• Published: University of Fort Hare 2016
• Subjects: Corporate governance > Law and legislation; Social responsibility of business; Sustainable development
• Online Access: http://hdl.handle.net/10353/5916

This study sets out to answer the question whether compliance with the directors’ fiduciary duty to act in the best interests of the company undermines other stakeholders’ interests and corporate sustainability. It adopts a comparative approach whereby the South African legal system is compared to that of the United Kingdom, Canada, and the United States of America where corporate scandals in the last two decades resulted in the collapse of some large companies. Qualitative research methods namely the critical and evaluation, comparative and legal historical approaches are employed. The adoption of the comparative and historical approach to this study makes it significant for company law literature. The study is hinged on two company law principles. The first one is that a company is a juristic and fictitious person. The second one is the separation of ownership and control of a company. To effectively understand how the directors’ fiduciary duty to act in the best interests of the company has evolved over time, a historical overview of fiduciary obligations is presented. Four different views about the origins of fiduciary obligations are examined. It is submitted that the old English case of Keech v Sandford1 and the South Sea Company Bubble are very significant to the development of fiduciary obligations and their assimilation into company law. Thereafter, a discussion on the nature and scope of the directors’ duty in question is presented. An analysis of the relationship between directors and the company and how rights and duties between the two legal subjects arise is also undertaken. It will be shown that the directors’ fiduciary duty to act in the best interests of the company is broken down into a number of mandatory rules. After outlining some selected company stakeholders, an argument is presented on who the legitimate beneficiaries of directors’ fiduciary obligations should be. Further, the study provides an explanation of the concept of ‘the best interests of a company’ before addressing the tension between the pursuit of sustainability and the best interests of the company. An important question in the context of this study is how can directors’ fiduciary obligations be enforced? Identifying that there is public and private enforcement of fiduciary obligations, this study focusses on private enforcement which mainly consists of judicial and administrative remedies. Judicial remedies especially the derivative action and oppression remedies will be examined. A greater part of the discussion will dwell heavily on whether the available remedies are relevant and/or effective in protecting various stakeholders’ interests. Due to the nature of the office of director, it can be contended that directors should not be held liable for every decision they make. As such, American courts have come up with what has come to be known as the business judgment rule. This rule protects directors from civil liability if they act in good faith, with due care, without any personal interest and within the director’s authority. It will be shown that the rule manifests or operates either as an abstention doctrine, as a standard of liability or as an immunity doctrine. As an abstention or standard of liability doctrine, the rule requires the plaintiff to rebut a presumption that directors acted in good faith in the best interests of the company. As an immunity doctrine, the rule requires the director to prove that s/he qualifies for the immunity.