Research Handbooks in Corporate Law and Governance series
Edited by Adolfo Paolini
Chapter 1: Evolving directors’ duties in the common law world
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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