Director Inattention and Director Protection under Delaware General Corporation Law Section 102(B)(7): A Proposal for Legislative Reform

24 Pages Posted: 14 Dec 2008 Last revised: 1 Mar 2009

Date Written: December 2, 2008

Abstract

Disinterested directors of Delaware corporations face virtually no threat of personal liability for inattentive corporate decision-making. Among other tools, Delaware General Corporation Law section 102(b)(7) insulates disinterested Delaware directors from personal liability for "merely" inattentive conduct. Yet behavioral psychology research indicates that the threat of punishment is an important motivator of actor behavior. Assuming it is sensible to motivate directors to be engaged, attentive corporate monitors, it is important to revise section 102(b)(7) so that directors face some credible threat of personal liability for inattentive conduct at the corporate helm. In this article, such revisions are proposed in the form of a liability cap. A capped liability statute will encourage Delaware jurists to hold directors accountable for inattentive conduct because the liability exposure of inattentive, but nonvenal, directors will be limited to a reasonable dollar amount that is not draconian.

Keywords: Delaware, Journal, Corporate, Law, Disinterested Directors, 102(b)7, personal liability, inattentive conduct, liability cap

Suggested Citation

Nowicki, Elizabeth, Director Inattention and Director Protection under Delaware General Corporation Law Section 102(B)(7): A Proposal for Legislative Reform (December 2, 2008). Delaware Journal of Corporate Law (DJCL), Vol. 33, No. 3, 2008. Available at SSRN: https://ssrn.com/abstract=1314055

Elizabeth Nowicki (Contact Author)

affiliation not provided to SSRN

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