Abstract

http://ssrn.com/abstract=438321
 
 

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Outside Director Liability Across Countries


Brian R. Cheffins


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

Bernard S. Black


Northwestern University - School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)

July 1, 2006

as published in Texas Law Review, Vol. 84, pp. 1385-1480, 2006
ECGI - Law Working Paper No. 71/2006
Stanford Law and Economics Olin Working Paper No. 266
Univ of Texas Law and Economics Research Paper No. 31

Abstract:     
Settlements reached in 2005 in securities litigation involving Enron and WorldCom highlighted the financial risks faced by outside directors of public companies. We argue elsewhere that Enron and WorldCom, as instances where directors made damages payments out of their own pockets, are and likely will remain exceptional in the United States (see Bernard Black, Brian Cheffins and Michael Klausner, Outside Director Liability, http://ssrn.com/abstract=894921). In this paper, we show that the risk of out-of-pocket payment is likewise very low on a cross-border basis, in both common law and civil law countries. The largest source of risk is efforts by government agencies to make an example of particular directors, even when the cost of doing so likely exceeds the financial recovery. We study Britain and Germany in depth and offer summaries of the position in Australia, Canada, France, and Japan. We find that while specific laws quite often differ, there is substantial functional convergence. In each country we analyze, due to a combination of substantive law, procedural rules, and market forces, the out-of-pocket liability risk faced by outside directors of public companies is similar - present but very small. We draw upon our cross-border analysis to assess the legal risks outside directors can expect to face going forward, both in the United States and elsewhere. We also briefly consider whether the current approach reflects sensible public policy.

Other pieces of this overall project are:

http://ssrn.com/abstract=382422 (a pre-Enron and WorldCom version of "Outside Director Liability", 2004)

http://ssrn.com/abstract=878135 (policy analysis, 2005)

http://ssrn.com/abstract=628223 (study of Korea, 2011)

http://ssrn.com/abstract=682507 (summary article for a finance audience, 2005)

http://ssrn.com/abstract=800584 (Germany-centered, 2005)

http://ssrn.com/abstract=800604 (German language version of Germany-paper, 2005)

http://ssrn.com/abstract=590913 (summary article for a practitioner audience, 2004)

Number of Pages in PDF File: 97

Keywords: outside directors, director liability, corporate law, securities law, indemnification, D&O insurance, derivative suits, securities class actions

JEL Classification: G30, G34, G38, K22

Accepted Paper Series


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Date posted: January 20, 2005 ; Last revised: June 29, 2011

Suggested Citation

Cheffins, Brian R. and Black, Bernard S., Outside Director Liability Across Countries (July 1, 2006). as published in Texas Law Review, Vol. 84, pp. 1385-1480, 2006; ECGI - Law Working Paper No. 71/2006; Stanford Law and Economics Olin Working Paper No. 266; Univ of Texas Law and Economics Research Paper No. 31. Available at SSRN: http://ssrn.com/abstract=438321 or http://dx.doi.org/10.2139/ssrn.438321

Contact Information

Brian R. Cheffins
University of Cambridge - Faculty of Law ( email )
10 West Road
Cambridge, CB3 9DZ
United Kingdom
+44 1223 330084 (Phone)
+44 1223 330055 (Fax)

European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Bernard S. Black (Contact Author)
Northwestern University - School of Law ( email )
375 E. Chicago Ave
Unit 1505
Chicago, IL 60611
United States
512-503-2784 (Phone)

Northwestern University - Kellogg School of Management
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-5049 (Phone)
European Corporate Governance Institute (ECGI)
Brussels
Belgium
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