Directors’ Duties and Legal Safe Harbours: A Comparative Analysis

RESEARCH HANDBOOK ON FIDUCIARY LAW, D.G. Smith, A.S. Gold, eds, Edward Elgar, UK, 2017, Forthcoming

European Corporate Governance Institute (ECGI) - Law Working Paper No. 351/2017

Sydney Law School Research Paper No. 17/29

42 Pages Posted: 29 Mar 2017 Last revised: 4 May 2017

Matthew Conaglen

The University of Sydney Law School

Jennifer G. Hill

The University of Sydney Law School ; European Corporate Governance Institute (ECGI)

Date Written: March 29, 2017

Abstract

Directors’ duties are a core element of corporate governance, yet a range of legal safe harbours ultimately shape the contours and stringency of these duties in practice. Although the standards of conduct that constitute directors’ duties (so-called ‘conduct rules’) are often relatively strict, legal safe harbours can dilute those rules, resulting in the application of more lenient standards of judicial review (‘decision rules’). The potential gap between conduct rules and decision rules, which has been labelled ‘acoustic separation’, is particularly striking in the context of the duty of care and diligence (‘duty of care’).

Directors’ duties and legal safe harbours can also involve complex interaction between equitable and common law (‘general law’) principles on the one hand, and statutory regimes on the other.

This paper explores, from a comparative law perspective, differences in the shape of directors’ duties and the legal safe harbours that accompany those duties. The paper examines directors’ duties in the United States (focusing on Delaware law), the United Kingdom and Australia. It considers the nature, operation and enforcement of directors’ duties in these three jurisdictions, with particular attention to the duty of care and two related legal safe harbours - the business judgment rule and exculpatory clauses.

The chapter explores how differences in relation to these various aspects of directors’ duties can alter ‘acoustic separation’, by expanding or reducing the gap between conduct rules and decision rules concerning directors’ duties. This issue has a direct bearing on the effectiveness of directors’ duties as a regulatory technique in the United States, the United Kingdom and Australia.

Keywords: directors’ duties, comparative law, decision rules, conduct rules, Delaware corporate law, UK company law, Australian company law, duty of care, codification of directors’ duties, enforcement, business judgment rule, exculpation and exoneration clauses, organisational origins, legal history

JEL Classification: D70, G30, G34, G38, K10, K19, K22, K39, N4, N20, N80, M14

Suggested Citation

Conaglen, Matthew and Hill, Jennifer G., Directors’ Duties and Legal Safe Harbours: A Comparative Analysis (March 29, 2017). RESEARCH HANDBOOK ON FIDUCIARY LAW, D.G. Smith, A.S. Gold, eds, Edward Elgar, UK, 2017, Forthcoming; European Corporate Governance Institute (ECGI) - Law Working Paper No. 351/2017; Sydney Law School Research Paper No. 17/29. Available at SSRN: https://ssrn.com/abstract=2942758

Matthew Conaglen

The University of Sydney Law School ( email )

New Law Building, F10
The University of Sydney
Sydney, NSW 2006
Australia
61 2 9114 0962 (Phone)
61 2 9351 0200 (Fax)

Jennifer G. Hill (Contact Author)

The University of Sydney Law School ( email )

New Law Building, F10
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9351 0280 (Phone)
+61 2 9351 0200 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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