Directors’ duties in the context of Confucianism

• Published in: Journal of financial crime Vol. 22; no. 1; pp. 37 - 47
• Main Authors: Lam, Charles KN, Goo, S.H
• Format: Journal Article
• Language: English
• Published: London Emerald Group Publishing Limited 05.01.2015
• Subjects: Accounting & Finance; Bids; Business ethics; Common law; Confucianism; Confucius (551-479 BC); Corporate governance; Directors; Duty of care; Employees; Fiduciary responsibility; Financial crime; Financial risk/company failure; Loyalty; Morality; Profit maximization; Stockholders; Teaching; Confucian teachings of loyalty and faithfulness; The law of fiduciary duty and the duty of care; Confucianism; Chinese business ethics
• ISSN: 1359-0790; 1758-7239
• DOI: 10.1108/JFC-05-2014-0022

Purpose – The purpose of this paper is to demonstrate how Confucianism can be applied in the areas that are now governed by company law in the common law system and how it can play a role in improving corporate governance. A gentleman in the context of Confucianism tends to be inclusive and broad-minded in embracing the interest of different stakeholders. In fact, he will balance the interests of shareholders and other stakeholders if there is any inherent conflict and try to achieve a win-win situation. Ultimately, he will run the company not just for profit-making but for social justice and commitment. Design/methodology/approach – The authors examine the leading cases in Hong Kong and the United Kingdom about the law of fiduciary duty and the duty of care and its relationship with Confucianism. In this respect, we review the teachings of the traditional Confucian texts and use Confucianism to fill in the gap where common law rules cannot reach. In addition, we adopt a comparative study approach in examining the law of directors’ duties in Hong Kong, China and the United Kingdom. Findings – It can be seen that the concept of fiduciary duty and duty of care is quite complicated and evolving and always subject to the interpretations of the court from time to time. For fiduciary duty, the term itself is quite conceptual and not immediately available to the general public. But loyalty in the context of Confucianism is a very lively and down-to-earth moral principle. Besides, fiduciary duty is imposed from outside, where directors had no choice but to accept. But loyalty in the context of Confucianism is something inherent and something from within. It is a moral principle that if you deeply understand the meaning of it, you will automatically accept it as a good virtue and your conduct will naturally be guided by such a principle. Confucianism can thereby be used to fill the gap where rules and regulations cannot reach. Confucian business ethics and common law rule should be complementary to each other in the development of a Chinese corporate governance system. Originality/value – This paper is the first of its kind in discussing the relationship between the law of directors’ duties and Confucianism. It argues that Confucianism plays a crucial role in guiding the behavior of the directors and can supplement the abstract principles of directors’ duties in the context of a Chinese corporate governance system.