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Ethics of corporate governance: global convergence or divergence?
Edited by Professor G.J. Rossouw
1. Introduction
The American and Canadian perspective on corporate governance, in general, remains faithful to the premises of Common Law fiduciary principles on agency relationships. In short, from this perspective on the nature of the limited liability corporation, investors in corporate enterprise surrender some degree of ownership control in return for limitations on their liability for corporate conduct. They surrender most of their property rights to manage the corporate to agents - a board of directors whom they select and who have custody of their assets as quasi-trustees operating under a deed of trust - the charter of the corporation.
2. The moral subordination of corporate directors in the North American perspective
As agents of the shareholder/owners, corporate boards collectively, and members of such board individually, owe fiduciary duties to their principals - the shareholder/owners of the enterprise. They do not owe fiduciary duties directly to stakeholders such as customers, employees, creditors, suppliers, the community or the environment.
However, these non-owning stakeholders are indirect beneficiaries of the duties that flow to shareholders since, under a duty of due care to husband and enhance the capital value of the business, corporate boards and their members must be prudent and effective in their relationships with all stakeholders.
Anglo-American Common Law, supplemented by regulatory legislation, looks upon each position of fiduciary responsibility as an office in the private sector. The powers of each such office - agent, partner, trustee, corporate director or corporate officer - are set through contractual mechanisms of private ordering within, however, a framework of law that imposes certain responsibilities in every case of fiduciary discretion. The responsibilities imposed by the law generally may not be waived by contract as they are designed to prevent abuse of power by the fiduciary.
Corporate directors are fiduciaries because they are agents of shareholders, elected to manage the funds contributed to the enterprise by such shareholders. Corporate officers are agents of the corporation. Fiduciary duties are expressly imposed on corporate directors by statute under American law. Most state statutes provide that the business and affairs of the corporation will be managed by its board of directors, giving the directors agency powers to act in the...