Required reading

1. D: AktG, §§ 82, 88, 93, 112, 116

2. UK: CA 2006, secs. 170–173, 175–180, 182, 187, 188, 190–192, 197–201, 217–219, 223; Insolvency Act 1986, sec. 214

3. US: Model Act, § 8.30 (including Comment) and §§ 8.60–8.63; DGCL, § 144

Directors' duty of loyalty

Rules, standards and fiduciary duties

The matters discussed in this chapter arise after shareholders have exercised their right to elect directors and the board is seated in office. Each of our three jurisdictions uses a mixture of rules and standards to guard against management incompetence and disloyalty. Each of the jurisdictions requires that managers act in accordance with the standards of due care (“duty of care” or Sorgfaltspflicht) and loyally (“duty of loyalty” or Treupflicht). A “standard of conduct” prescribes how a person should act or fulfill a function or task, and it operates as an open-ended measure against which the quality of performance can be assessed ex post. A “rule,” by contrast, names something specific that the management must do or not do. Standards flexibly adapt to acts and procedures that are not foreseen in their entirety when the standard is written, but standards can also create legal risks for directors because the scope of their requirements is often difficult to foresee. Rules, on the other hand, offer bright lines that are easy to apply, but for the same reason they can also be easy to evade – given that their parameters are clear and inflexible – unless they are arranged with sufficiently contiguous density, and often fail to account for changing circumstances.