Director accountability mechanisms

Accountability mechanisms for directors' duty breaches in Singapore, Hong Kong, Malaysia, India, Australia, the US and the UK.

Summary

This project is part of a larger Monash University Network of Excellence project on Enhancing Corporate Accountability.  It is a comparative study of the regulatory and corporate governance mechanisms that are available to hold directors accountable for breaches of their duty in Singapore, Hong Kong, Malaysia, India, Australia, the US and the UK.

Researchers

Project background and aims

The Hayne Royal Commission emphasised the importance of accountability in deterring corporate misconduct, asserting that 'adequate deterrence of misconduct depends upon visible public denunciation and punishment'.[1] Our study aims to facilitate a more nuanced understanding of public accountability and enforcement of key corporate governance provisions internationally, drawing lessons for Australia to inform regulatory responses.

We build on Cheffins and Black's comparative study of the legal risks faced by outside directors of public companies in the US, the UK, Germany, Australia, Canada, France and Japan. [2] The focus of the study was on situations where directors incurred "out-of-pocket" or "personal" liability. The authors found that in all of the countries examined there was the potential for outside directors to be held personally accountable for breach of directors’ duties. However, in all jurisdictions, outside directors were rarely required to make personal payments. The few cases where a personal payment was required were likely to have been instigated by a government agency or public regulator.

We examine the mechanisms that are available internationally to hold directors accountable for breaches of directors' duties. The project focuses particularly on common law jurisdictions, including Australia, Singapore, Hong Kong, Malaysia and India. We examine the law on the books and the law in action. We are interested in: the types of enforcement mechanisms; the number and kind of enforcement actions that are commenced; the categories of directors who are subject to those actions; the outcomes of those actions, including the types of penalties imposed; whether, as was found by Cheffins and Black, directors are more likely to be out of pocket following an enforcement action instigated by a government agency, rather than a private enforcement action; and any changes to enforcement patterns in Australia as a result of the Hayne Banking Royal Commission. Finally, the project will consider the effect of corporate codes on expectations relating to directors’ duties and to corporate accountability generally.

The research is part of a larger project with colleagues from the Monash Law Faculty and the University of Manchester, who are criminal law specialists.  The research project  is funded by a Monash University Network of Excellence grant.

  • [1] Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Final Report, February 2019) vol 1, 433.
  • [2] Brian R. Cheffins; Bernard S. Black, ‘Outside Director Liability across Countries’, (2006) 6 Texas Law Review 1385-1480.

Methodology

This comparative project adopts a traditional, doctrinal methodology to identify the accountability mechanisms that are available in common law jurisdictions, with particular emphasis on Australia, Singapore, Malaysia, Hong Kong and India. We search court judgements, regulatory documents and other secondary sources and conduct interviews to identify the enforcement actions that have been undertaken.

Publications related to this project

  1. Tim Bowley and Jennifer Hill, 'Stewardship and Collective Action: The Australian Experience', in Global Shareholder Stewardship: Complexities, Challenges and Possibilities (forthcoming, 2020, Cambridge University Press, UK).
  2. Vivien Chen, 'Enforcement of Directors' Duties in Malaysia and Australia: The Implications of Context' (2019) 19(1) Oxford University Commonwealth Law Journal 91.
  3. Wai Yee Wan, Christopher Chen and Say H. Goo, 'Public and Private Enforcement of Corporate and Securities Laws: An Empirical Comparison of Hong Kong and Singapore' (2019) 20 European Business Organization Law Review 319.
  4. Olivia Dixon and Jennifer Hill, 'Australia: The Protection of Investors and the Compensation for their Losses', in Global Securities Litigation and Enforcement, 1063-1100 (Cambridge University Press, UK: Pierre-Henri Conac and Martin Gelter, eds., 2019).
  5. Jennifer Hill and Matthew Conaglen, 'Directors’ Duties and Legal Safe Harbours: A Comparative Analysis' (with Matthew Conaglen), in Research Handbook on Fiduciary Law, 305-330(Edward Elgar Publishing Ltd, UK: D. Gordon Smith and Andrew S. Gold, eds., 2018).
  6. Luh Luh Lan, 'Directors' Duties' in Essentials of Corporate Law & Governance in Singapore (2018) Sweet & Maxwell.
  7. Jennifer Hill, ‘Good Activist/Bad Activist: The Rise of International Stewardship Codes’, 41 Seattle University Law Review 497-524 (2018).
  8. Andrew Keay and Michelle Welsh, 'Enforcing Breaches of Directors' Duties by a Public Body and Antipodean Experiences' (2015) 2 Journal of Corporate Law Studies 255 - 284.
  9. Michelle Welsh, 'Realising the Public Potential of Corporate Law: Twenty Years of Civil Penalty Enforcement in Australia' (2014) 42 (1) Federal Law Review 217 - 240.
  10. Michelle Welsh and Vince Morabito, 'Public vs. Private Enforcement of Securities Laws: An Australian Empirical Study' (2014) 14 (1) Journal of Corporate Law Studies 39 - 78.
  11. Umakanth Varottil 'Directors' Duties and Liabilities in the New Era', NSE Quarterly Briefing (No. 5, April 2014).
  12. Renee Jones and Michelle Welsh, 'Toward a Public Enforcement Model for Directors' Duty of Oversight' (2012) 45 (2) Vanderbilt Journal of Transnational Law 343 - 403.
  13. Jennifer Hill, 'Centro and the Monitoring Board – Legal Duties Versus Aspirational Ideals in Corporate Governance', 35 University of New South Wales Law Journal 341- 359 (2012).