Jennifer G. Hill and Matthew Conaglen
Directors’ duties are a core element of corporate governance, yet a range of legal safe harbours ultimately shape the contours and stringency of these duties in practice. Although the standards of conduct that constitute directors’ duties (so-called ‘conduct rules’) are often relatively strict, legal safe harbours can dilute those rules, resulting in the application of more lenient standards of judicial review (‘decision rules’). The potential gap between conduct rules and decision rules, which has been labelled ‘acoustic separation’, is particularly striking in the context of the duty of care and diligence (‘duty of care’). Directors’ duties and legal safe harbours can also involve complex interaction between equitable and common law (‘general law’) principles on the one hand, and statutory regimes on the other. This chapter explores, from a comparative law perspective, differences in the shape of directors’ duties and the legal safe harbours that accompany those duties. The chapter examines directors’ duties in the United States (focusing on Delaware law), the United Kingdom and Australia. It considers the nature, operation and enforcement of directors’ duties in these three jurisdictions, with particular attention to the duty of care and two related legal safe harbours – the business judgment rule and exculpatory clauses. The chapter explores how differences in relation to these various aspects of directors’ duties can alter ‘acoustic separation’, by expanding or reducing the gap between conduct rules and decision rules concerning directors’ duties. This issue has a direct bearing on the effectiveness of directors’ duties as a regulatory technique in the United States, the United Kingdom and Australia.