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In the first place, the fiduciary duties are owed to the company rather than the individual shareholders. There is no fiduciary relationship between directors and the shareholders individually, unless in some circumstance the former are authorised by the shareholders as negotiating on behalf of them.
Secondly, whereas the authority of the directors to bind the company as its agents normally depends on their acting collectively as a board, their duties of good faith are owed by each director individually.
Thirdly, the duties attach from the date when the director’s appointment takes effect but do not necessarily cease when his appointment ends.
(I.I.I) Acting in Good Faith
Directors are required to act “bona fide in what they consider, - not what the court may consider- is in the best interests of the company, and not for any collateral purpose.” There are two issues in this context used by the court. (1) how to realise the expression that directors must act in the interest of the company and, (2) directors must not act for any collateral purpose.
(1) It is important to consider what exactly is meant that they must act in the interest of the company. Despite the separate personality of the company, it is clear that directors are not expected to act on the basis of what is for the economic advantage of the corporate entity, disregarding the interests of the members. Traditionally, this obligation to act bona fide in the interests of the company has been defined as an obligation to act in the interests of the shareholders and it is the directors’ subjective opinion as to the interests of the corporators as a general body, balancing the short-time interests of the present members against the long-term interests of the future members. There is support for treading creditors in the same manner as shareholders in some circumstances, i.e. where the company is insolvent. Insolvency Act 1986 and Company Directors Disqualification Act 1986 all focus on the creditors’ position. The employees’ position are also considered in these years, under the section 309 Companies Act 1985, the matters to which directors are to have regard in the performance of their functions have been to expanded to “include the interests of the company’s employee in general, as well as the interests of its members.” However subsection (2) provides that: “Accordingly the duty imposed by this section on the directors is owed by them to the company (and the company alone) and is enforceable in the same way as any other fiduciary duty owed to a company by its directors”. It means that the employees as such have no means of enforcing it, but nevertheless it presents a tentative step towards recognising the employees’ role in the enterprise. Another issue much debated recently is whether a company should adopt a more inclusive approach and consider the interests not just of its shareholders, employees and creditors but also broader constituencies such as its suppliers, customers and the community. This has been described as the stake holder debate, the idea being to identify those groups of interests which have stakes in a company and whose position should be reflected in the way in which management conducts its responsibilities. The directors can meet their legal duties to shareholders, and can pursue the objective of long-term shareholder value successfully, only by developing and sustaining these stakeholder relationships.
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