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Introduction Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be kicked? Edward, First Baron Thurlow 1731–1806 This chapter begins by introducing the concept of corporate governance, and the regulatory role of directors’ duties. An appreciation of corporate governance methodologies gives context to the ‘hard law’ of directors’ duties. The chapter then considers who falls within the definition of director, the role of the director within the company, and how that role attracts legal and non-legal regulation. It identifies who, beyond directors, can also be subject to directors’ duties. The chapter revisits the history of directors’ duties within Australian corporate law, building on the historical context provided by Chapter 1, and exploring the interrelationship between the duties applicable at common law, in equity, and according to statute. It concludes with the consequences of breach of the civil penalty provisions and options for exoneration and relief under the Corporations Act . Corporate governance Lord Chancellor Thurlow's observation at the start of this chapter is used to highlight the difficulties of managing corporate behaviour and effective punishment of misbehaviour. It is relevant when considering the legal obligations owed by, to, and within a company. The corporate form suffers from a fundamental deficiency: while it is a distinct legal person, in addition to having no physical form to punish, there is no obligation for it to have an active consciousness like a natural person. Only the natural entity theory fully recognises the potential for a company to have a conscious will separate from that of its members and managers. Other theories consider the company as an artificial entity, which emphasise wider public interest only because that existence is conceded by the legislature, or do not recognise the company as having an existence separate from the natural persons in the company. A solvent company formed under the Corporations Act has two decision-making organs – the board of directors and the members in general meeting – that generally operate independently from one another. Further complicating matters is that these decision-making organs are populated by natural persons, with varied interests, values, ideals and goals, such that the organs vary in the projection of these interests, values, ideals and goals depending upon who constitutes that organ at the time. |
