Promoting enhanced enforcement of directors' fiduciary obligations: the promise of public law sanctions

Abstract

The substantive law which regulates the exercise of directors’ powers is not self implementing. Action must be taken to enforce its observance. The legal system must therefore provide a reliable mechanism for enforcing the law which seeks to protect the interests of companies and, vicariously, the investing community. Unless that is done, the applicable rules are bound to deteriorate into voluntary obligations which the controllers of companies may or may not observe according to their whims. This article argues that dual (public and private) is required in order to achieve optimum enforcement of the law governing directors’ fiduciary duties. Further, it advocates enhanced use of public (criminal) law sanctions as a means of promoting greater deterrence of wrongful director conduct. By reason of their stigmatic effects, these sanctions have great potential to deter undesirable conduct. Some of the impediments to the effective use of public law sanctions in this area are examined. Finally, the article explores ways in which the law could be reformed to overcome these obstacles.