University of Arizona
September 10, 2013
Arizona Legal Studies Discussion Paper No. 13-34
This Article explores extreme circumstances in which, because of available warning signs, decisionmakers know (or should know) that a high-impact negative event is about to happen or is already happening (“red-flag situations”), yet fail to consider the implications of the coming or unraveling disaster. The Article explains the mechanisms of failures to consider predictable disasters and the feasibility of reducing the costs of such disasters through law. The Article argues that the legal approach toward red-flag situations, as well as the artificial distinction between action and inaction, facilitate and preserve the tendency to overlook predictable disasters. The Article discusses the Delaware business judgment rule and directors’ oversight liability as prime examples of the current legal approach, and examines these legal standards’ effect on directors’ failures consider predictable corporate disasters.
Number of Pages in PDF File: 43
Keywords: red flags, business judgment rule, omission, inaction, failure, bounded rationality, regulationworking papers series
Date posted: July 6, 2013 ; Last revised: September 14, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo8 in 0.281 seconds