An examination of the recent developments in directors’ duties in the People’s Republic of China (“China”), Hong Kong, the United States (“US”), Canada, the United Kingdom (“UK”) and the European Union (“EU”) reveals interesting trends. 

Despite the differences in the cultural and economic landscape of these jurisdictions, governments, courts and other regulatory bodies (outside of China) have generally moved in similar directions.  Changes include the codification of directors’ duties, developments in common law and the adoption of corporate governance practices or codes for listed companies.  Many changes respond disproportionately to the financial crisis and as a consequence have led to public company directors of significant experience being treated like infants.

There have been a number of developments affecting UK directors in the past few years.  These include the codification of directors’ duties under the Companies Act 2006 (and their interpretation by the courts) as well as numerous government consultations ranging from directors’ remuneration to diversity in the boardroom which have resulted in changes to the corporate governance code for public companies.

Hong Kong has adopted a similar approach to the UK.  Sweeping legislative reforms are currently in the process of being introduced by the Hong Kong government.  The government will be codifying some of the rules on directors’ duties in the next revision of the Companies Ordinance.  The movement in the legislative space is in contrast to the limited amount of case law development.  This is because many of the listed companies in Hong Kong are controlled either by a sovereign or a prominent family, meaning that significant cases brought by shareholders against the board are few and far between.

The approach in the UK and Hong Kong can be contrasted with the position of the EU, where no attempt has been made to harmonise the difference in directors’ duties and regulation across the 27 Member States.  There have, however, been attempts to streamline approaches to certain corporate governance issues across the EU and signs are emerging that the EU may move towards aligning directors’ duties in the future.

The developments of most interest in the US have generally been found in case law rather than statute.  Recent case law in the State of Delaware has shown that the jurisdiction continues to be a business and target-board friendly environment.  The majority of high profile cases have been resolved in favour of company directors and management or in favour of target boards over bidders.  Despite this, the Delaware courts have been extremely critical of board actions on occasion.

By way of contrast, there has been very little seminal Canadian case law over the past few years.  However, there has been movement in the regulatory area of Canadian directors’ duties.  These changes predominantly relate to common law developments on fiduciary duties and the oppression remedy, the approach of Canadian securities regulators to poison pills and class actions by secondary market purchasers.

China has been the outlier in terms of the jurisdictions reviewed, with very little in the way of reforms occurring in the past few years.  Although directors’ duties are established and supervised differently in China than to common law jurisdictions, the duties themselves are expressed in very similar terms.  It may be because China has not experienced the same issues as other jurisdictions in the aftermath of the financial crisis, that its directors have not been subjected to the same level of intervention as has been the case globally.

There has been a high degree of similarity of approach to corporate governance taken by the key stock exchanges in each of the jurisdictions reviewed (apart from China).  The grounds covered by each of the stock exchanges examined has generally been the same, with all but the New York Stock Exchange (“NYSE”) following the Australian Securities Exchange’s approach whereby a listed company is not legally required to comply with the relevant corporate governance provisions, but to the extent they do not, they must disclose why in their annual and sometimes interim or half yearly reports.  NYSE-listed companies, on the other hand, are required to comply with a corporate governance code, which is less comprehensive in terms of coverage of issues, but is highly prescriptive.

It will be interesting to see how directors’ duties and corporate governance continue to develop over the next few years, particularly as the jurisdictions examined recover from the aftermath of the financial crisis.

* This opinion derives from a major anlaysis co-written by Mr Friedlander and King & Wood Mallesons partner, Shannon Finch along with Amanda Isouard and Martin Kan, which  was presented at the UNSW Continuous Legal Education 2012 Workshop on Directors Duties. The full paper is available on the resources section of the portal.