The Sustainable Corporate Objective: Rethinking Directors’ Duties

Abstract

Traditionally, the purpose of directors’ duties within company law is to ensure that the powers of management given to directors are properly exercised. For instance, instead of using their managerial powers to further their personal interests or for some collateral purpose, directors are under a duty to take decisions which they think will further the company’s interests. In most EU jurisdictions, determining what acting in the company’s interest means is not mandated by law, but is rather left to the subjective business judgement of directors. The discretion allowed by this duty has allowed for, influenced in part by a law and economics approach to company law, the shareholder value norm to become entrenched. This paper argues that the law of directors’ duties should evolve to provide specific guidelines to directors on the question of the corporate objective. It supports existing arguments for a reform of EU company law to include a new duty requiring directors to ensure sustainable value creation. The paper argues that any such duty should be framed objectively and be enforced through public mechanisms rather than a reliance on private actors.