Outside Directors, Liability Risk and Corporate Governance: A Comparative Analysis (English Version)

38 Pages Posted: 9 Sep 2005

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


Outside directors constitute a key component of most prescriptions for good governance of public companies. Given that outside directors are important corporate governance players, one is led to wonder what will motivate the individuals serving in this capacity to carry out their responsibilities in an effective manner. An obvious possibility is that concerns about being held personally liable will push them to perform effectively. This chapter correspondingly considers the scope of outside director liability in seven countries (Australia, Britain, Canada, France, Germany, Japan and the United States). The chapter indicates that outside directors of public companies are at some risk when litigants are seeking to send a message to those serving in the boardroom of public companies. Generally, however, such individuals only very rarely pay damages or legal expenses out-of-their own pocket. The chapter offers a brief assessment of the costs and benefits of current arrangements and concludes that, consistent with the current cross-border pattern, out-of-pocket liability should remain a rare outcome.

Note: A German version of this paper can be found at: http://ssrn.com/abstract=800604

Keywords: outside directors, corporate governance, Germany, supervisory board, director liability, securities law, corporate law

JEL Classification: G30, G34

Suggested Citation

Cheffins, Brian R. and Black, Bernard S. and Klausner, Michael D., Outside Directors, Liability Risk and Corporate Governance: A Comparative Analysis (English Version). ; U of Texas law, Law and Econ Research Paper No. 31. Available at SSRN: https://ssrn.com/abstract=800584

Brian R. Cheffins

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom
+44 1223 330084 (Phone)
+44 1223 330055 (Fax)

European Corporate Governance Institute (ECGI)

B-1050 Brussels

Bernard S. Black (Contact Author)

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
312-503-2784 (Phone)

Northwestern University - Kellogg School of Management

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-5049 (Phone)

European Corporate Governance Institute (ECGI)


Michael D. Klausner

Stanford Law School ( email )

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

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