Directors’ Duty of Care in Times of Financial Distress Following the Global Epidemic Crisis
27 Pages Posted: 19 Apr 2020 Last revised: 1 Jun 2020
Date Written: April 16, 2020
The global Covid-19 pandemic is causing the large-scale end of life and severe human suffering globally. It is the most massive public health crisis in modern living memory, which created a significant economic crisis. This dramatic change is reflected in a significant recession of global production and the collapse of confidence in the functions of markets. Corporations and boards of directors around the world are required to design specific strategies to tackle the negative consequences of the crisis. This is especially true for small and medium-sized enterprises (SMEs) that suffered tremendous economic loss, and their continued existence as ongoing concern is questionable. Given these uncertain financial times, this Article is devoted to exploring directors' duty of care from a global perspective. In particular, I argue that the current crisis will underline the importance of the advisory role of the board of directors rather than the monitoring function, and further regulatory reforms that strengthen such capacity are expected to emerge. Furthermore, I maintain that the civil law rather than the Anglo-American law on directors' duty of care provides boards with a more expansive scope of discretion to confront the unusual challenges associated with the Covid-19 because these governance regimes are tailored to the unique features of companies and markets. I apply this novel argument in different types of SMEs, mainly in the family business and venture capital-backed firms.
Keywords: Covid-19 pandemic, small and medium-sized enterprises (SMEs), firm-specific view of directors' duty of care
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