Research Handbook on Directors’ Duties

Research Handbook on Directors’ Duties

Research Handbooks in Corporate Law and Governance series

Edited by Adolfo Paolini

Directors’ duties and liabilities have become the centre of a general legal discussion following the 2008 financial scandal that resulted in global recession. Questions have arisen regarding the ways in which the directors of the world’s major financial institutions have handled their duties and how their decisions have impacted investors, shareholders and consumers. This detailed Handbook discusses the nature of the relationship between a company and its directors, assessing issues such as how duties are discharged, liabilities that may arise and what interests directors should consider before embarking on commercial ventures.

Chapter 1: Evolving directors’ duties in the common law world

Jennifer G. Hill

Subjects: law - academic, company and insolvency law, comparative law, corporate law and governance

Extract

Legal scholars have long discussed the gap, or ‘acoustic separation’, between the stringent standards of conduct (‘conduct rules’) and the more lenient standards of review (‘decision rules’) in legal regulation. This gap has been particularly stark in the United States (US) in the area of directors’ duties. For example, although the duty of care appears on its face to be a relatively strict doctrine, adjudication by the courts has tended to be generous to directors. The gap between conduct and decision rules is also relevant to the question of whose interests directors should take into account in the performance of their duties. The goal of this chapter is to explore a range of developments relating to directors’ duties across several common law jurisdictions, against the backdrop of conduct and decision rules. The chapter is structured as follows. First, it examines US law relating to directors’ duty of care and the business judgment rule, from the perspective of acoustic separation. As US case law, such as the Disney litigation, shows, the liability risk to directors, particularly non-executive directors, for breach of the duty of care is negligible.

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