Supervision of the use of corporate power as the ultimate purpose of directorial duties and the advisability of corporate law enforcement in the public interest

Authors Tshepo H Mongalo

ISSN: 2521-2575
Affiliations: Senior Law Academic and Head of Law Department at Monash South Africa
Source: Journal of Corporate and Commercial Law & Practice, The, Volume 3 Issue 1, 2017, p. 17 – 48


In the aftermath of the devastating global financial crisis in the latter part of the first decade of the 21st century, a question that begs for an answer is whether a different corporate legal enforcement framework aimed at mitigating the effects of aggressive directorial pursuit of profits to satisfy the short-term interests of shareholders would have helped in minimising the effects of the crisis, at least in key Anglo-American jurisdictions. Using lessons from South Africa and Canada, this article questions whether the regulatory responses to the financial and economic crises adequately recognises the threat that reckless management poses to the broadly defined legal interests of corporate entities. The acceptance of the true purpose of directorial duties — the indisputable source of corporate legal interests — may justify a departure from the conventional Anglo-American shareholder-oriented corporate legal enforcement framework, which still limits the right of action to protect the legal interests of companies to shareholders. The preservation of the conventional corporate legal enforcement framework, particularly in jurisdictions that bore the brunt of the global financial crisis (that is, the United Kingdom and the United States), is notwithstanding the institutionalisation of the ‘enlightened shareholder value approach’ (ESVA). The original jurisprudential justifications for the conventional shareholder-oriented corporate legal enforcement framework are no longer justifiable, particularly in the context of public companies, where the argument for the protection of broader interests is more compelling. Since, in that context, the purpose of directorial duties as the exclusive protection of shareholder interests can no longer be sustained, policy makers should accept that the supervision of the use of corporate power to minimise or eradicate the potential for directorial self-serving conduct is the ultimate purpose of such duties. The article concludes that existing corporate law rules already address the potential for floodgates of litigation and the alleged lack of practical means of a broadly inclusive enforcement framework.