Harold Ford lecture a deep dive through directors' duties and more
MLS had the honour of hearing the Honourable Justice Geoffrey Nettle of the High Court of Australia deliver the 2017 Harold Ford lecture at the end of June.
Justice Nettle’s lecture, titled ‘The Changing Position and Duties of Company Directors’, charted the evolution over several centuries of the duties imposed upon company directors at law, both in Australia and abroad.
The current position in Australian law is that company directors must, among other things, exercise their powers and discharge their duties with a degree of care and diligence that a reasonable person in their office would be expected to exercise.
In taking the packed lecture theatre through the history of directors’ duties, Justice Nettle sought to arrive at one of the central destinations of his lecture. Namely, that the duties imposed on company directors are unnecessarily more onerous than the duties imposed on union officials and parliamentary officers, and these latter two should perhaps be made more stringent to match the former.
The different duties imposed on all three arise historically from what Justice Nettle referred to as differing “imperfect analogies to the position of trustees” — a fundamental legal principle prior to the creation of companies in the modern sense.
“If a company director and, to a lesser degree, a union official are legally bound to act bona fide in the best interests of the entity in which they hold office, why should not a parliamentarian who may hold the fate of the nation in his or her hands be bound to at least as much?” Justice Nettle said.
“It remains open to ask why they should not be more closely aligned.”
Justice Nettle similarly suggested revisiting the so-called ‘business judgment rule’, which offers some protection to company directors who take action in good faith for a proper purpose and have reasonably availed themselves of any relevant information. Justice Nettle discussed the idea of expanding the rule to offer a presumption of innocence to directors, more closely in line with the United States position.
Justice Nettle also touched on the lack of an ‘enlightened shareholder’ doctrine in Australia, which allows directors to look beyond the needs to their companies in determining the best course of action and to assess what might be of wider benefit to the community as a whole.
These things, he said, placed tighter constrictions on what conduct is acceptable of Australian directors as compared with their international counterparts.
Justice Nettle concluded by returning to his point on the relatively light duties imposed by law on parliamentarians, and looked towards a future in which such duties may reflect those imposed on company directors.
“It is not inconceivable that there might one day evolve a parliamentarian’s duty to act with reasonable skill and care like the duty of a director”.
On this last point, Justice Nettle wryly suggested “it might be supposed that it will not be legislative intervention that brings about that change”.
By Scott Colvin