Shareholder Suits and Outside Director Liability: The Case of Korea

40 Pages Posted: 17 Jan 2005 Last revised: 22 Jan 2019

See all articles by Brian R. Cheffins

Brian R. Cheffins

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

Bernard S. Black

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

Michael Klausner

Stanford Law School; European Corporate Governance Institute (ECGI)

Date Written: July 2011


Reforms to Korean corporate and securities law carried out in the wake of the 1997-1998 East Asian financial crisis included a mandate that boards include a minimum number of outside directors and facilitation of shareholder lawsuits against board members for damages. The strategy of imposing liability risk on directors (both inside and outside) appeared to follow U.S. practice. In the U.S., outside directors of public companies are often sued but rarely face personal, or “out-of-pocket,” liability unless they engage in self-dealing. Instead, damages and legal fees are paid by the company, directors' and officers' (D&O) insurance, or both. Outside directors of public companies in Australia, Canada, Britain, France, Germany, and Japan similarly rarely face out-of-pocket liability due to shareholder lawsuits. Moreover, when events have occurred in these countries that increase the risk of out-of-pocket liability, there is a strong tendency for political or market forces to reestablish a non-zero but minimal level of risk for actions that do not involve self-dealing. Korea’s experience seems to be similar. We argue that Korea could go somewhat further to encourage litigation against outside directors of public companies, but should not open the way for “out of pocket” liability to become commonplace.

For a shorter, somewhat updated version of this article, see Black, Cheffins & Klausner, Shareholder Suits Against Korean Directors (2012), at

For the other principal pieces of our overall project on outside director liability, see:

Black, Cheffins & Klausner, Outside Director Liability (Stanford Law Review, 2006),

Cheffins and Black, Outside Director Liability Across Countries, (Texas Law Review 2006),

Additional pieces of this overall project are: (policy analysis) (a pre-Enron and WorldCom version of Outside Director Liability) (study of Korea) (summary article for a finance audience) (Germany-centered) (German language version of Germany-paper) (summary for practitioner audience)

Keywords: corporate governance, director liability, fiduciary duty, securities law, securities class actions, law and finance, director duties

JEL Classification: G32, G34

Suggested Citation

Cheffins, Brian R. and Black, Bernard S. and Klausner, Michael D., Shareholder Suits and Outside Director Liability: The Case of Korea (July 2011). Journal of Korean Law, Vol. 11, pp. 325-362, 2011, Stanford Law and Economics Olin Working Paper No. #, ECGI - Law Working Paper No. 47/2005, Available at SSRN:

Brian R. Cheffins

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
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+44 1223 330055 (Fax)

European Corporate Governance Institute (ECGI)

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Bernard S. Black (Contact Author)

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
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Northwestern University - Kellogg School of Management

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Evanston, IL 60208
United States
847-491-5049 (Phone)

European Corporate Governance Institute (ECGI)


Michael D. Klausner

Stanford Law School ( email )

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Stanford, CA 94305-8610
United States
650-723-6433 (Phone)
650-725-0253 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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