The Public Enforcement of Directors' Duties

Abstract

The general duties owed by directors to their companies are a critical element of company law overall, and corporate governance in particular. If these duties are breached the board, acting on behalf of the company, is empowered to decide whether to take action against the miscreant directors. If no action is taken by the board UK law essentially leaves it to private parties to take any action against the miscreants. The parties who can take action are the shareholders of the miscreant director’s company, and they must do so pursuant to a derivative action. This might be seen as the primary private enforcement mechanism used in the UK when directors commit breaches. This is in line with the UK’s general approach to fostering a private rather than a public approach to corporate governance. It appears that there have been relatively few derivative actions commenced by shareholders, probably because of the many disincentives that confront shareholders. Given this state of affairs the aim of this paper is to investigate whether there is a need for the public enforcement of duties so that there is an enhancement of corporate governance in the UK. This then leads to us asking whether it is feasible and/or desirable to grant powers to a public authority to take enforcement action in appropriate cases.

Keywords: directors' duties, directors, derivative actions, United Kingdom, corporate governance

JEL Classification: K22, G30