Assessment and Evaluation: Retheorizing the Evolving Rules of Director Liability

Abstract

The purpose and parameters of director liability lack a clear articulation, particularly with respect to indemnification. Corporate statutes and actual practice retain both liability and constraints on indemnification, but there is substantial scope for directors to contract for protection. Thus, neither a regulatory nor a contract model provides a particularly robust explanation for the form of the statutes. Alternative theories to account for the form of director liability and exoneration might include rent-seeking by lawyers for corporations, the team production model, or post modern readings that accept the text as an expression of discontinuities in the official legal narrative about corporations. Practically, policy alternatives include deregulation that subjects indemnification decisions to the normal default rules of corporate law, classifying indemnification decisions as conflict of interest transactions, or treating them as grants of compensation. The textual artifacts in which are embedded contradictory impulses about director liability could be used as a means of conditioning contracts for indemnification on the production of corporate narratives by those seeking indemnification. The result would be to give effect to a dual voice of monetary bargain and entity narrative.