Redefining Directors' Duties in the EU to Promote Long-Termism and Sustainability
40 Pages Posted: 1 Nov 2018
Date Written: September 24, 2018
The paper entitled 'Redefining directors' duties in the EU to promote long-termism and sustainability' springs from the fact that although it is universally agreed that directors' obligations are to act in the interests of the company, there exists a lack of clarity over what these 'interests' are in practice or who they are owed to.
The directors of a company are those responsible for implementing the company's strategy, overseeing its operations, and accounting for its performance. The way that such duties are defined determines how the directors are accountable and who they are accountable to.
The purpose of this publication is to explore ways to clarify and, where appropriate, enhance director duties and corporate governance by explicitly incorporating sustainability factors into those obligations and focusing directors' attentions on the long-term.
The European Commission has taken up the debate on the obligations of company directors and will be considering if they should be clarified at an EU level. This commitment is included in their Action Plan on Sustainable Finance aimed at transforming Europe's economy and financial system into a sustainable one. The Commission seeks to attenuate short-term pressure from capital markets on corporations that force directors to disregard opportunities and risks stemming from long-term sustainability considerations.
The paper therefore firstly considers the duty of directors to act in the interests of the company and explores more particularly, to whom these duties are owed to, who benefits from them and what the interests of the company are. It also includes an analysis on other duties which could be adopted to effectively promote the success of the company in the long-term, whilst minimising social and environmental impacts. Lastly, the paper outlines further reforms in company law that could be introduced in relation to the social purpose of the company in order to promote long-term sustainability and facilitate the efforts of sustainable investors.
The proposals included in this paper are supported by examples and analyses from EU Member States and other jurisdictions, and the questions that might need to be considered in order to apply these to an EU-wide context.
Keywords: corporate governance, director duties, sustainability, planetary boundaries, due diligence, purpose of business, short-term pressure
JEL Classification: L20, L21, M1, M10, M14
Suggested Citation: Suggested Citation