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Chapter 4: Directors’ Duties within the United Kingdom
Rebecca Parry Introduction This chapter considers the English law on directors’ duties. This is an area of law that has traditionally been regulated according to principles established by judicial decision, strengthened in some cases by means of statutory provisions. A complex body of such case law has been established. However in July 2002, after an extensive Company Law Review process, the government announced an intention to codify the law in this area, in the interests of clarity and accessibility (Modernising Company Law: 26ff.). The draft Companies Bill (Modernising Company Law: 343ff.; Draft Companies Bill, s. 17 and Sch. 2, para. 2.) indicates that this codification, although replacing the common law, will not substantially alter the case-law principles. It should be added these laws should not be viewed in isolation – they are supplemented to a significant extent by non-legal codes of conduct, in particular regarding listed companies. We shall begin with an examination of theoretical considerations, before examining the historical evolution of the law in this area. Finally the prospects for future reform in this area will be summarized. Theoretical considerations The main theoretical controversy in the context of directors’ duties centres around the appropriate objective of the company’s activities. Some theorists contend that the directors should manage the company in the interests of its shareholders: this may be termed ‘the shareholder argument’. Others contend that the directors should take the interests of stakeholders, such as employees and customers of the company, into account in making decisions: this may be termed...
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