Juridical Tribune Volume 8, Issue 3, December 2018 625
justifies pursuing long-term profits without considering the consequences of their
actions for external natural and legal persons3. Fiduciary duties are designed to
regulate directors’ conduct and their decisions in situations of conflict of interest,
whereas currently, sufficient business law rules protect third party interests.
However, we observe a small number of regulations that encourage agents to act
with social responsibility.
An established principle as a prerequisite for complying with the (fiduciary
duty of) good faith is that directors are under a duty not to knowingly cause a
situation in which the corporation is in breach of the law, even if following a rational
judgment, the foreseeable consequence of the violation is maximization of
shareholders' dividends. The rationale for establishing this duty is that a corporation
in which individuals comply with statutory schemes simply because they fear legal
sanctions, cannot survive and in order to achieve the success of a corporation, most
of its members need to internalize the moral obligation to respect the law. This moral
duty includes the generally accepted standards of decency and honesty, and is not
limited to the duty to comply with legal norms4. Thus, it is irrelevant whether the
reasoning of the decision-maker was based on the fact that legal sanctions and
damage to the company's reputation are disproportionate to the probability of being
caught or whether the legal sanctions provided by law are lower than the estimated
profit obtained as a result of the violation.
The social interest to forbid directors to consciously cause a corporation to
break the law in search of profit growth, is becoming stronger. The present paper
aims at analyzing the fundamentals and traits of this duty, which is first and foremost
attached to corporate directors and officers, who guide the conduct and business
agreements concluded by the company. In the first part, I will analyze the
compatibility of the principle of lawful conduct with the principle of maximizing
shareholders’ wealth, namely the actual purpose for the founding and existence of a
Further, I will offer an interpretation of the corporate governance practices
and rules which underpin this duty in various pre-existing institutions. A part of legal
literature considers that a director who determines a company to break applicable
law or discovers that the corporation doesn’t comply with legal provisions and
refrains from taking action to stop unlawful practices, violates the duty of loyalty5.
Other authors believe that directors have the duty to adopt and enforce rules and
procedures to ensure institutional compliance with regulations, therefore a director
who deliberately causes a corporation to violate the law, breaches the duty of care.
We will demonstrate that no mechanism for limiting liability can function
for acts or omissions committed without good faith, due to intentional improper
conduct or intentional violation of the law. The homogenous Delaware case law
3 Rosenberg, D: Dela ware's expanding duty of loyalty and illega l conduct: A step towards Corpor ate
Social Responsibility, Santa Clara Law Review vol. 52 no. 1, 2012, p. 82.
4 See f.n. 1, Eisenberg, p. 32 and f.n. 2 Rosenberg, p. 101.
5 Welch, E.P., Turezyn, A.J., Saunders, R.: Folk on the Delaware General Corporation Law: Fundamentals,
Wolters Kluwer Chicago, 2011 edition, p. 116.