Stakeholders and Directors' Duties: Law, Theory and Evidence
54 Pages Posted: 12 May 2009 Last revised: 3 Jul 2012
Date Written: June 29, 2012
An important debate concerns the meaning of the duty imposed on company directors to act in the best interests of the company. Are shareholders' interests paramount when directors act in accordance with this duty? To what extent can the interests of stakeholders other than shareholders be considered by directors? Does this duty need to be changed to facilitate socially responsible behaviour by directors? There have been significant international developments addressing these questions. For example, in the United Kingdom the duty to act in the interests of the company was reformulated in 2006. In Australia, two recent government inquiries have investigated these questions. However, the two government inquiries lacked empirical evidence regarding how directors understand their legal duties. This paper assesses the findings of the two government inquiries against the results of a survey of directors which inquired into how company directors balance the competing and sometimes conflicting interests of stakeholder groups, including employees, creditors and shareholders. The paper also investigates the extent to which the current law of directors' duties permits directors to consider the interests of stakeholders other than shareholders.
Suggested Citation: Suggested Citation