The duty to act in good faith in the interests of the company (now the duty to promote the success of the company in s 172 Companies Act 2006 (UK)) is the central fiduciary duty of company directors in a number of common law jurisdictions. It encapsulates loyalty between director and company by focusing directors on the company’s interests. Its multifaceted nature means that it is employed to impose a number of requirements, as demonstrated in the multijurisdictional analysis in this article. Contemporary commentary and cases have, however, doubted the fiduciary classification of the rule. This article defends the rule’s fiduciary classification. After examining key facets of the rule, it demonstrates that, although flexible, the rule cannot be stretched to protect stakeholder interests independently of corporate benefit.
The article first outlines the centrality of the best interests rule in ensuring loyalty in the director-company relationship. It then shows the extensive role played by the best interests rule in focusing directors on the company’s interests. In a comparative survey of three key jurisdictions, this function of the rule is drawn out. This function also causes apparent problems as concerns the fiduciary classification of the rule, which is explored in the fourth section of the article. Highlighting the true nature of the best interests rule in its application to the exercise of discretionary power, and its central role in the sphere of directors’ duties, paves the way for the critical examination of its appropriateness as a stakeholder protection tool.
As a result of this extensiveness there may be a temptation to see the best interests rule as an accordion term and, as such, able to extend to the protection of stakeholder interests (independently of demonstrable corporate benefit). A key feature of this discussion, and indeed of wider debate on directors’ duties and corporate social responsibility, are the contours of the company’s interests. It is concluded that, although the best interests rule can play a significant role as concerns stakeholder interests, it should not be stretched to the point where the foundation of fiduciary loyalty in the director-company relationship is endangered.
This comparative examination of the rule across the United Kingdom, Hong Kong and Australia aids in the interpretation and development of the rule in each of the jurisdictions, particularly as concerns contested and uncertain aspects.
The multifaceted nature of the best interests rule demonstrates the central role played by the rule, which underlies and unifies directors’ fiduciary duties, and is integral to fiduciary loyalty in the corporate context.