Dawn Following Darkness: An Outcome-Oriented Model for Corporate Governance
33 Pages Posted: 23 Mar 2010
Date Written: March, 13 2010
This article is an effort to identify changes in the legal standards governing obligations of corporate directors which are likely to prevent – not merely punish - the sorts of catastrophic mistakes by private firms which have led to our recent economic upheaval. The author addresses inadequacies in both present law – particularly the business judgment rule as it applies to large, highly interconnected firms – and pending reform efforts, such as limitations on compensation for executives, and increased proxy access for non-management director candidates. The article’s emphasis is on the need to address outcomes instead of the process-oriented approach of present law and proposed changes. In particular, the author takes what is likely to be a controversial position, of advocating direct responsibility of directors of highly interconnected firms, presenting significant systemic exposure, under certain circumstances, when seriously adverse outcomes befall their firms. Such responsibility would take the form of a reversal of the present burden of proof placed on plaintiffs in actions alleging breach of directors’ duty of care.
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