On The Fiduciary Duty Of The Directors

The perfection of the government structure of company means more than the legislations concerning company. It depends not only on legislation concerning company but also on the whole legal system. From the perspective of the whole legal system, we can identify the important role the legal system plays in the government of company. The control of the directors is an important aspect of the perfection of company government. Imposing fiduciary duties on directors is a means of control based on the relationship between directors and company. At the same time, the perfection of company government is both a legislative and a judicatory problem. To the complex deeds of the directors which defy conceptualization, judicatory concern is particularly important. With the fiduciary duty of the directors as a cutting point, this paper analyzes problems in legislative and judicatory perspectives and constructs a series of institutional designs with a view to perfecting the government structure of company by institutional coordination. In this sense, it is a question of substance and procedure, it is a question of legal techniques and also it is a question of legal methodology. In specific, the logic and structure are as follows: Chapter one is devoted to the discussion of the relationship between directors and company. This is the foundation and premise of imposing fiduciary duty on directors. As for the relationship between directors and company, scholars often illustrate it in one light. Thus, the relationship is defined as trust, agency, warranty or contract. This absolute way of definition is only true in the sense that they represent some aspect of the problem, but they cannot retort other oppugns, and they cannot disprove other theories either and hence the difficulty of defining the problem. By a functional approach, it is asserted in this paper that the clarification of the problems need solving via the relationship between directors and company is the source of all reasonable answers. The real purpose of the clarification of the relationship between directors and company lies in the control of the powers of directors and the solution of the contradiction between the benefits of the directors and that of the company. Therefore, it is believed in this paper that there exist multiple relations between directors and company. These relations include trust, agency, warranty and contract. The negation of any of the above-mentioned relations is unreasonable. The existence of these relations provides the foundation for the coordination of different systems and the premise for the introduction of the fiduciary duties of directors. Chapter two focuses its attention on the contents of the fiduciary duty of directors. Fiduciary duty really means that a trustee should not use the power in his hand to seek profit for himself and slight others and in the final analysis harms the benefits of companies, shareholders and creditors. The fiduciary duty of directors originated from the Court of Chancery who designed imposing these duties on those who represented people with property or the benefits of others. The fiduciary duty of directors includes duty of care and duty of loyalty. Because of the flexibility of the trust system, the introduction of fiduciary duty will prove to be of great practical benefit. First, directors'duty of care. There are several versions of the directors'duty of care and they mainly include the following: one, people should not expect directors of techniques and abilities of higher quality than those with equal knowledge and experiences reasonably expected. Two, director should not assume responsibilities concerning mistakes from wrong judgments. Three, director are not required to pay continuous attention to the affairs of company. Four, taking into consideration of the strict requirements of business and constitution of company, when it comes to the duties of other employees, companies should permit directors to believe that other employees carry outtheir duties faithfully on condition that the directors in question lack reasons for reasonable doubt. The criteria for judging directors'duty of care should be a combination of objective and subjective matters and should be analyzed according to the actual state of affairs. At the same time, people tend to confuse directors'duty of care with the rules of business judgments. Under the system of directors'duty of care, the rule of business judgments is the protection mechanism for directors'duty and they are two sides of one coin in nature. To make a specific research on the two will help resolve problems but in practice these two are difficult to clarify and the accomplishment of this needs the accumulation of experience. Second, directors'duty of loyalty. Directors'duty of loyalty refers to the fact that directors should be faithful to company and try their very best for company and when their interests are contradictory to those of company, they should put the interests of companies at the first place instead of those of their own. Since the interests of directors are often at variance with company, how to put these contradictions under the regulation of law is the essence of directors'duty of loyalty. This chapter mainly focuses on two questions, namely directors'self-dealing and company's opportunities. As for directors'self-dealing, it seems extremely hard to give an intact and clear definition. Simple legislative or judicatory regulations will not meet the preset demands. A universal ban of all self-dealing is one of the ways out of this difficulty. To make information public continuously and authentically is a good choice if self-dealing is permitted. As for company's opportunities, all the choices of legal control should be based on its correct understanding. What's more, the connotation and range of company's opportunities will change with the development of business practice. Therefore, the consolidation of company's opportunities is very harmful. Chapter three presents the judicatory solution to directors'fiduciary duty. This means that the solution of all the problems concerning directors'fiduciary duty should rely on the basis of judicatory means. In essence, the judicatory solution can make up for the defects of legislative approach and thus have more practical values. First, directors'fiduciary duties should and must be put under the judicatory regulations. Russian experiences prove that to solve the problem of the regulation of directors'deeds within the scope of autonomy of company is a total failure. To seek help from the board of shareholders is also impractical . Thus the final way out is the appeal to judicatory means. Second, the theoretical basis of the judicatory means is the theory of the incompleteness of laws. The incompleteness of fiduciary duties in a larger scale and its flexibility make the judicatory means more important. The judicatory approach to the regulation of fiduciary duty is thus of its peculiar features. It requires the courts of more independence and activism. The activism of judicature is the natural requirement of fiduciary duty and is also the fundamental condition of the judicatory approach to fiduciary duty. Third, the judicatory approach needs the support of concerning systems and the premise here is to endow shareholders with rights of derivative action. The condition of the derivative action and the redistribution of legal cost is the key to the problem. For a better solution of the duties and responsibilities of directors, a new definition of director itself is vitally important here. The range and connotation of director here is not a matter of little significance. Directors should include the following: formal directors, factual directors or shadow directors, fake directors and associate directors. At the same time, due to the differences between the continental legal system and the Anglo-American legal system, the activism of judicature in our country needs the support of legislation. The judicatory approach of directors'fiduciary duty needs a premise, that is, to give judges a clear legal guidance as the base of the...