Can Directors Go Their Own Way? Supreme Court Guidance On Directors’ Duties And Board Decision Making

Most company directors are aware of their directors’ duties, including the duty to act in the best interests of the company.

But what does that actually mean in practice?

A recent UK Supreme Court decision in Saxon Woods Investments Limited and others v Costa has provided some important guidance. The Court considered whether a director who genuinely believed he was acting in the company’s best interests could still breach his duties if he pursued that objective in a way that undermined the board’s agreed strategy.

The answer was yes.

The case arose out of a proposed sale of a company, Spring Media Investments Limited.

The chairman believed that delaying the sale would ultimately lead to a better outcome for shareholders. Rather than openly putting that view to the board and seeking support for a different approach, he took steps behind the scenes to delay the sale process whilst giving the impression that the agreed strategy was still being followed. The Supreme Court found that this conduct breached his duties as a director.

Why Does This Matter?

Many directors assume that if they genuinely believe they are acting in the company’s best interests, they are unlikely to be criticised.

The Supreme Court’s decision shows that this is not always the case.

One of the core directors’ duties is to act in good faith to promote the success of the company. According to the Court, that duty is not just about the outcome a director is trying to achieve. It is also about how they go about achieving it. A director cannot mislead colleagues, withhold information or work against an agreed board strategy simply because they believe their approach is better for the company.

A Reminder That Boards Make Decisions Collectively

The case reinforces a fundamental principle of corporate governance: boards make decisions collectively.

Directors are expected to challenge, question and disagree where necessary. Healthy debate is often a sign of a well-functioning board. However, if a director disagrees with a decision, the answer is to raise those concerns openly within the boardroom, not to pursue an alternative strategy behind the scenes.

Transparency, openness and accountability are not simply examples of good practice. They form part of the framework that allows boards to function effectively.

The Supreme Court’s judgment contains some practical lessons for boards:

• If you disagree with the board’s strategy, raise your concerns openly.
• Ensure relevant information is shared with fellow directors.
• Be cautious about taking unilateral action on strategically important matters.
• Remember that delegated authority does not remove accountability to the board.
• Focus not only on outcomes, but also on the process by which decisions are reached.

Why Process Matters

One of the most interesting aspects of the decision is the Court’s emphasis on process.

Good governance is not simply about making the “right” decision. It is about ensuring decisions are reached through an open, transparent and accountable process.

This is an important reminder at a time when boards are facing increasingly complex decisions around growth, investment, restructuring, technology and risk. Directors may have strong views about the right way forward, but the route taken to reach that outcome matters just as much as the outcome itself.

More Than a Corporate Governance Lesson

Although the case concerned a company director, the underlying principles will be familiar to anyone involved in governance. The importance of transparency, collective decision-making and acting in the organisation’s best interests applies equally to shareholders, trustees and other fiduciaries.

The Supreme Court’s message is ultimately a simple one: compliance with directors’ duties is not determined solely by the outcome being pursued. How they behave, communicate and exercise their powers along the way matters too.