Jennifer G. Hill is Professor of Corporate Law at University of Sydney Law School; Matthew Conaglen is Professor of Equity and Trusts at University of Sydney Law School. This post is based on a recent paper by Professors Hill and Conaglen, forthcoming in the Research Handbook on Fiduciary Law. This post is part of the Delaware law series; links to other posts in the series are available here.
Directors’ duties are a core element of corporate governance, yet a range of legal safe harbours ultimately shape the contours and stringency of these duties in practice. Although the standards of conduct that constitute directors’ duties (so-called “conduct rules”) are often relatively strict, legal safe harbours can dilute those rules, resulting in the application of more lenient standards of judicial review (“decision rules”). The potential gap between conduct rules and decision rules, which has been labelled “acoustic separation,” is particularly striking in the context of the duty of care as it is applied to directors.
Directors’ duties and legal safe harbours can also involve complex interaction between equitable and common law (‘general law’) principles on the one hand, and statutory regimes on the other. Whereas some jurisdictions, such as Delaware, rely exclusively on general law principles in relation to directors’ duties, others, including the United Kingdom and Australia, have adopted statutory regimes, which either co-exist with, or supplant, the general law regime.