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Sustainable Directors’ Duties and Reasonable Shareholders

Year of Publication: 2023
Month of Publication: 5
Author(s): Hans Tjio
Research Area(s): Corporate Law
Name of Working Paper Series:

NUS Law Working Paper No. 2023/016

NUS EW Barker Centre for Law & Business Working Paper 23/05

WPS Paper Number: LAW-WPS-2316
Abstract:

This paper will examine the sustainability of directors’ duties from two perspectives, namely that the duties are stable in their own right and cover enough ground so that they can help achieve sustainable goals. First, we will examine how directors’ duties to act in a company’s best interest operates well when shareholder interests are aligned. That duty when breached can be ratified by shareholders given the traditional understanding that they are the company. This may in turn have been associated with the growing acceptance of shareholder primacy over the past 40 years seen most recently in the UK Supreme Court decision in BTI v Sequana (2022). The court there, however, also discussed the limitations of shareholder ratification, and its interaction with the rules protecting creditors, particularly capital maintenance. Where the substantive content of directors’ duties is concerned, the focus everywhere is on how to make directors take account of external constraints such as environmental, social and governance (ESG) concerns and corporate purposes that may contradict enhancing shareholder value (as well as existing shareholder protection) as an established paradigm of company law. We will analyse the difficulties even in accommodating the interests of other internal constituents like creditors (some who may have been externalized). This paper will build on earlier suggestions that the proper purpose rule has a part to play in balancing the interests of corporate constituents both inter and intra se and even to consider the position of future shareholders. The test of what is in the best interest of the company may not provide enough balance in this regard and should take account the interest of the reasonable shareholder to capture the gist of what we want with ESG.

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