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Edited by Stephen Tully
Chapter 3: The Fiduciary Duties of Directors: A Proposal for Improving Corporate Governance in Latin America
1 Cándido Paz-Ares Corporate governance, fraud and negligence: a working hypothesis The objective of this chapter is to understand the relationship between rules of law and market forces and, from there, to establish the bases of a legal policy concerning director liability capable of providing operators with guidelines for designing their governance structures, lawyers with criteria for interpreting the legislation in force and legislators with elements of reflection for a legislative reform which, ceteris paribus, will tend to maximize the value of business enterprises and, consequently, facilitate the development of capital markets. Critical to such an endeavour is pinpointing the fulcrum of equilibrium in the director liability system that will allow this efficiency objective to be achieved. This point of equilibrium is not a universal one since it depends on the conditions of individual markets, the institutions operating in individual environments, the circumstances involved in individual companies and even the preferences of the parties thereto. The fundamental bases for the qualitative estimation of the phenomena concerned lie in an analytical separation of the technological aspect (managerial capacity to generate the highest returns) from the deontological aspect (management’s willingness to distribute gains in the most equitable manner) and in the corresponding distinction between the duties of care and loyalty. The duty of care – the duty of diligence of the ‘orderly businessman’ – requires directors to invest a specific amount of time and effort and to develop a sufficient level of expertise devoted to management or supervision of the company with a...
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