Edited by Sean Griffith, Jessica Erickson, David H. Webber and Verity Winship
Chapter 6: Illegality and the business judgment rule
The chapter addresses derivative claims that seek to hold corporate officers and directors liable for causing the company to commit illegal acts. The author argues that corporate law should not subject defendants to greater judicial scrutiny in stockholder suits simply because they have caused the company to violate the criminal or civil law. Corporations that violate the law may well face financial penalties and other legal repercussions, and individuals personally involved may also face sanctions of their own. It is less clear, however, whether directors violate their fiduciary duties by approving illegal acts, especially where those acts do not harm the corporation. Many corporations today have made violating, and ultimately changing, the law part of their business model. Corporate lawbreaking under this model may be both profitable and socially beneficial. As a result, stockholder litigation seeking director liability for illegal actions threatens to be a formidable obstacle to progress.
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