Reviewing Directors’ Business Judgements: Views from the Field
| Published date | 01 November 2020 |
| Date | 01 November 2020 |
| Author | FRANCIS OKANIGBUAN,ANDREW KEAY,JOAN LOUGHREY,ABIGAIL STEWART,TERRY McNULTY |
| DOI | http://doi.org/10.1111/jols.12257 |
JOURNAL OF LAW AND SOCIETY
VOLUME 47, NUMBER 4, NOVEMBER 2020
ISSN: 0263-323X, pp. 639–65
Reviewing Directors’ Business Judgements:
Views from the Field
ANDREW KEAY,∗JOAN LOUGHREY,∗∗
TERRY McNULTY,∗∗∗ FRANCIS OKANIGBUAN,∗∗∗∗
AND ABIGAIL STEWART∗∗∗∗∗
Directors take decisions that can have significant impacts on others,
as illustrated by the global financial crisis and the collapse of Thomas
Cook Group plc. Yet many academics argue that courts should not
review or impose liability on directors for poor business judgements.
These arguments often rely on untested empirical assumptions about
directors’ behaviour and attitudes. Through semi-structured interviews
and focus groups, we explored the responses of directors, legal
practitioners, company secretaries, and board headhunters to the
prospect of judicial review of directors’ business judgements. Our
findings challenge orthodox thinking: many directors supported some
form of review and the impact of review may not be as great as
the literature predicts, nor necessarily detrimental. The debate about
∗Centre for Business Law and Practice, School of Law, University of Leeds,
Leeds, LS2 9JT, England
a.r.keay@leeds.ac.uk
∗∗ Centre for Business Law and Practice, School of Law, University of Leeds,
Leeds, LS2 9JT, England
j.m.loughrey@leeds.ac.uk
∗∗∗ Management School, University of Liverpool, Liverpool, L69 7ZX,
England
t.h.mcnulty@liverpool.ac.uk
∗∗∗∗ School of Law, Liverpool John Moores University, Liverpool, L2 2QP,
England
f.a.okanigbuan@ljmu.ac.uk
∗∗∗∗∗ Management School, University of Liverpool, Liverpool, L69 7ZX,
England
abigail.stewart@liverpool.ac.uk
Research for this article was funded by the Arts and Humanities Research Council,
Business Judgment and the Courts (Project Number: AH/N008863/1). We are grateful
to the funders. Versions were given at Cambridge in February 2019 and at the SLSA
conference in Leeds in April 2019. We are grateful for the feedback that we received
from these engagements. All errors and omissions are our own.
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© 2020 The Author. Journal of Law and Society © 2020 Cardiff UniversityLaw School
whether courts should review directors’ business judgements should
therefore move away from reliance on negative empirical assumptions
about the impact of review, to clearly articulating, and engaging with,
normative positions that underpin opposition to, and support for, review.
I. INTRODUCTION
The global financial crisis and high-prof ile corporate collapses, such as
Thomas Cook Group plc, BHS Ltd, and Carillion plc, resulted in much
public criticism of directors. Directors have been required to explain
themselves before parliamentary committees and rebuked by politicians
and a hostile media.1The policy response has been a renewed focus on
corporate governance reform. In 2018, Grant Thornton stated that ‘[t]he UK
is witnessing a battle to restore trust in business … Governance is more
in the spotlight than at any time since the “Maxwell years”.’2However,
importantly for this article, in contrast to ‘the Maxwell years’, the conduct for
which directors have been criticized is not, in general, fraud and siphoning
off corporate assets, but business decisions that had disastrous outcomes,
albeit in some instances allegedly as a result of greed, an overly short-termist
perspective, and a disregard for the interests of a broader range of stakeholders
than shareholders.3
This has led to demands for individual accountability of those in charge of
companies that, while not always explicit, often seem directed to some form
of legal accountability.4Yet directors have faced little legal accountability in
the civil courts for poor business judgements that underpin recent corporate
collapses.5The Government has often shied away from legislative measures
directed at such accountability, asserting that the existing regimefor enforcing
directors’ duties ‘works’.6This has resulted in a disjunction between populist
debate, which has focused on the lack of ex post sanctioning of public
company directors, and Government initiatives, which, outside the financial
1 For example, Business, Energy and Industrial Strategy and Work and Pensions
Committees, Oral Evidence: Carillion 6th February 2017, HC (2017) 769, at <http://
data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/work-
and-pensions-committee/carillion/oral/78103.pdf>.
2 Grant Thornton, Corporate Governance Review 2018 (2018) 3.
3 K. Burgess, ‘Carillion’s Board: Misguided or Incompetent?’ Financial Times,
17 January 2018, at <https://www.ft.com/content/2095beca-fb8b-11e7-a492- 2c9be7
f3120a>.
4 For example, Parliamentary Commission on Banking Standards, First Report,
Changing Banking for Good, HL 27-I, HC-175-I (2013–2014) 10.
5 M. Moore, ‘Redressing Risk Oversight Failure in UK and US Listed Companies:
Lessons from the RBS and Citigroup Litigation’ (2017) 18 European Business
Organizations Rev. 733, at 736–737.
6 Department for Business, Energy and Industrial Strategy, Insolvency and Corporate
Governance: Government Response (August 2018) 26.
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© 2020 The Author. Journal of Law and Society © 2020 Cardiff UniversityLaw School
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