Journal of Institutional and Theoretical Economics, Vol. 162, 2006
22 Pages Posted: 25 Jan 2006
Outside directors of public companies play a central role in overseeing management. Nonetheless, they have rarely incurred personal, out-of-pocket liability for failing to carry out their assigned tasks, either in the litigation-prone United States or other countries. Historically, as threats to this near-zero personal liability regime have appeared, market and political forces have responded to restore the status quo. We suggest here reasons to believe that this arrangement is justifiable from a policy perspective, at least in countries where reputation and other extra-legal mechanisms provide reasonable incentives for outside directors to be vigilant.
Keywords: outside directors, liability, corporate governance
JEL Classification: G34, G38, K22
Suggested Citation: Suggested Citation
Black, Bernard S. and Cheffins, Brian R. and Klausner, Michael, Outside Director Liability: A Policy Analysis. Journal of Institutional and Theoretical Economics, Vol. 162, 2006; ECGI - Law Working Paper No. 59/2006; Stanford Law and Economics Olin Working Paper No. 319; U of Texas Law, Law and Econ Research Paper No. 54. Available at SSRN: https://ssrn.com/abstract=878135
By John Armour