John Wilcox is Chairman of Sodali, a director of ShareOwners.org, and former Head of Corporate Governance at TIAA-CREF. The article discussed below is available here.
Comply-and-Explain: Should Directors Have a Duty to Inform?, published recently in Duke Law School’s Journal of Law and Contemporary Problems, argues that the directors of publicly held companies in the United States should be subject to a new state law duty requiring them to explain to shareholders how the board is exercising business judgment and acting in the best interests of the corporation.
The duty is derived from: (1) the Model Business Corporation Act (MBCA) Section 8.30 that requires directors to act in the best interest of the corporation and to share information material to the exercise of the board’s decision-making or oversight functions; (2) Section 3.C.4 of the American Bar Association’s Corporate Director’s Guidebook, that sets forth a director’s “duty of disclosure”; and (3) the Department of Labor ERISA requirements governing the fiduciary duties of institutional investors and their exercise of proxy votes. The duty to inform also builds on concepts from the UK’s principles-based, comply-or-explain governance system that gives directors wide discretion to customize governance policies provided that they explain how their decisions are intended to achieve business goals and serve the best interests of the company and its shareholders.