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 9: In loco parentis: directorial duties to consumers

Theresa A. Gabaldon

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

Extract

This just in – not all decisions made by economic actors are completely rational. Social psychologists have long taught, and legal analysts now often concede, that human beings have cognitive limits that may be routinely exploited in a variety of ways, including the method in which an issue is framed. Unsurprisingly, corporate America has been paying psychologists and other social scientists for years and has handily plumbed their insights in devising products and marketing campaigns. The result is a marketplace in which ads for fast food and diet aids compete for position before the eyes of a progressively overweight population, and billions of dollars are spent on products for children that, by and large, their parents may not really want them to have. The traditional view of corporate law asserts that the corporation serves society via the satisfaction of consumers’ revealed preferences, which dictate the ultimate allocation of resources contributed by corporate investors, workers, and managers. The recognition that there are easily manipulable “bounds” on rationality, self-interest and free will severely weaken this theory’s underpinnings. If corporations in fact create the preferences they then satisfy, it is corporate managers and their social science advisors who are deciding that a tsunami of wealth should go into the production and consumption of junk food and violent video games.

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