Outside Directors and Lawsuits: What are the Real Risks?

11 Pages Posted: 15 Sep 2004

See all articles by Brian R. Cheffins

Brian R. Cheffins

University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)

Bernard S. Black

Northwestern University - Pritzker School of Law

Michael Klausner

Stanford Law School; European Corporate Governance Institute (ECGI)

Abstract

We often hear that hardly anyone wants to sit on corporate boards these days, largely because they fear personal liability. Our investigation of seven representative countries (Australia, Britain, Canada, France, Germany, Japan, and the United States) suggests that the liability concern is overdone. Although there are good reasons for outside directors to fulfill their duties diligently, fear of liability should not be one of them. Outside directors face only a tiny risk of paying damages or legal fees out of their own pockets.

This article is a revised and condensed version of Bernard Black, Brian Cheffins, and Michael Klausner, Liability Risk for Outside Directors: A Cross-Border Analysis, European Financial Management vol. 10 (forthcoming 2004), available at http://ssrn.com/abstract=557070, which in turn is a summary of two longer papers, Bernard S. Black, Brian R. Cheffins, and Michael Klausner, Outside Director Liability (working paper 2004), available at http://ssrn.com/abstract=382422, and Bernard S. Black and Brian R. Cheffins, Outside Director Liability Across Countries (working paper 2003), available at http://ssrn.com/abstract=438321.

Keywords: corporate governance, director liability, fiduciary duty, securities law, securities class actions, law and finance, director duties

JEL Classification: G32, G34

Suggested Citation

Cheffins, Brian R. and Black, Bernard S. and Klausner, Michael D., Outside Directors and Lawsuits: What are the Real Risks?. Available at SSRN: https://ssrn.com/abstract=590913

Brian R. Cheffins

University of Cambridge - Faculty of Law ( email )

10 West Road
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European Corporate Governance Institute (ECGI) ( email )

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Bernard S. Black (Contact Author)

Northwestern University - Pritzker School of Law ( email )

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Michael D. Klausner

Stanford Law School ( email )

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650-725-0253 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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