Outside Director Liability: A Policy Analysis
Journal of Institutional and Theoretical Economics, Vol. 162, 2006
ECGI - Law Working Paper No. 59/2006
22 Pages Posted: 25 Jan 2006
Abstract
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
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