Corporate Directors' Fiduciary Duties Grow

This is not meant to be a legal advice - this is a proposed approach to an enforcement mechanism

Directors of corporations have a fiduciary duty to make decisions in the best interest of the shareholders and the corporation. The way this duty has traditionally been defined is in purely financial terms. Given recent corporate scandals and the recognition that shareholder returns depend on limiting risk, the scope of directors' duties is expanding to include environmental, human rights, labour and other non-financial factors. The presence of a duty means that directors also face liability for failing to consider corporate responsibility issues. This lead to a new enforcement mechanism that strikes at the heart of the corporation and its directors interests.

- In Progress -

What is a fiduciary duty?

Fiduciary relationships arise from power imbalances, where one party (the vulnerable party) places trust in a fiduciary. Common examples are doctors and patients, teachers and students, trustees and beneficiaries. The fiduciary owes a "duty of utmost good faith" to make decisions in the vulnerable party's best interests. In the case of corporations, the shareholders elect directors to sit on the Board to oversee the actions of the management and to set broad objectives for the company. Shareholders are vulnerable because they are unable to constantly monitor management and, in fact, do not have a legal right to direct specific actions, other than through voting at shareholder meetings.

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