IN criminal law, some trial lawyers will inevitably face the dilemma of choosing between doing the harder right of finding the truth but with dire consequences to their clients or doing what it takes to include suppressing the truth to protect their clients’ interests.
In one frustrated homicide case, my friend RB, a defense lawyer, opted to relentlessly pursue the truth by cross-examining witnesses whose testimonies may end up adverse to his own client’s interest. RB suspected that his client failed to fully disclose to him the truth. Thus, instead of choosing to remain silent, RB propounded questions to allow prosecution witnesses—the forensic expert, in particular, for justice to be served. In the process, RB, fresh from passing the Bar, managed to expose the truth that unfortunately resulted to the conviction of his client. Some praised him considering that a lawyer has solemn duties to the court, his client, to the profession, and to society as a whole, as provided in the Code of Professional Responsibility. In case of conflict among these four, I assume lawyer RB remembered from his legal ethics class to answer the call of duty to uphold the administration of justice.
In corporate law, a company can only act through its board of directors, which is vested with its overall governance. Elected by the shareholders, the BOD of a corporation has fiduciary duties to the shareholders, as well as to the company, which has a separate and distinct legal personality from the shareholders. Such BOD duties arise from its respective legal relationship with the corporation, imbued with trust and confidence. Thus, the BOD has the primary fiduciary duty of loyalty, which entails the obligation to take necessary actions both to promote the corporation’s interest and to prevent harm to it. Aside from the duty of loyalty to the corporation and to its shareholders collectively, other BOD duties include the duty of diligence and obedience as provided in the Corporation Code.
However, similar to a litigation
lawyer, a dilemma might arise when the interests of the corporation will clash
with that of the shareholders. Such potential conflict between the directors’
duty to the company and their supposed duty to shareholders had been discussed
in English jurisprudence. The cases of Perceval v. Wright (1902)
and Sharp and
Others v. Blank and Others (2013) reviewed the general principles
that (1) directors owe fiduciary duties to the company, which is
“unexceptionable and flows from the fact that the directors are agents of the
company and stewards of its affairs” and (2) directors do not, solely by virtue
of their office, owe fiduciary duties to the shareholders, collectively or
individually.
By law, a director necessarily agrees to act in the interests of the company as a fiduciary. However, the relationship between directors and shareholders is strictly not like that of a fiduciary. Although the interests of both the shareholders and the company are generally and should be aligned, this mutuality does not mean that a director has agreed to act for the shareholders. A director has no direct relationship with the shareholders as his relationship is with the company. In the words of Eric Fryar, a Texas lawyer whose expertise lies in shareholder rights: “If a director owed a fiduciary duty to shareholders, this would frequently place him in a position where his duty to shareholders would be in conflict with his duty to the company.”
In an article, Cesar Villanueva, the former dean of Ateneo Law School and former chairman of the Governance Commission for GOCCs, expounded on the Doctrine of Maximization of Shareholders’ Value, as part of Corporate Governance. Villanueva said that all corporations, acting through their BOD, “should be devoted toward a single objective of maximizing the profits of the corporation for the benefit of its stockholders.” Villanueva added that the Corporation Code, which grants directors with legal title to the corporate assets for the benefit of stockholders, serves as “the legal bedrock for the prevalence of the Doctrine of Maximization of Shareholders’ Value in Corporate Governance.” Profit maximization appears to be the ultimate measure whether the BOD fulfilled its fiduciary duties with the underlying dictates of corporate governance.
In contrast, in our daily lives, a multitude of metrics for dutiful servants can be found in the Bible. For instance, the Bible gives us the measure of our conduct in His eyes as provided in Colossians 3:23, “Whatever you do, work at it with all your heart, as working for the Lord, not for human masters.” Lawyers have the duty to pursue justice by seeking the truth whereas directors of a company have the duty to maximize profits through good governance. One call of duty for all believers is “to be obedient, to be ready to do whatever is good, to slander no one, to be peaceable and considerate, and always to be gentle toward everyone.” (Titus 3:1-2)
For questions and comments, please e-mail me at sbmison@gmail.com.