Law, Norms, and the Breakdown of the Board: Promoting Accountability in Corporate Governance

54 Pages Posted: 17 Aug 2006

Abstract

This Article considers the dominant claim in corporate law literature that extra-legal mechanisms such as markets and social norms provide adequate safeguards against corporate mismanagement and opportunism. After noting recognized deficiencies in the arguments from market discipline, the Article draws on psychological insights to show that certain behavioral phenomena prevent social norms from appropriately constraining corporate conduct.

It then argues that because neither markets nor social norms can sufficiently discipline corporate officials, a credible accountability mechanism is necessary to prevent director conduct standards from deteriorating. Unfortunately, an inveterate tradition of judicial deference in corporate law has undermined the role of fiduciary duty litigation as a mechanism for accountability.

To promote greater accountability in corporate governance, the Article recommends reforms to the director liability regime. It argues that litigation and settlement practices should require negligent directors to make personal payments toward settlements and damage awards, and that such payments should be calibrated based on a director's ability to pay. This proposal addresses two main weaknesses in the current director liability regime: (1) judicial nullification and (2) legitimacy concerns regarding the scope of directors' liability risks.

Keywords: norms, accountability, director liability, fiduciary obligations, corporate conduct, market discipline, director conduct

Suggested Citation

Jones, Renee M., Law, Norms, and the Breakdown of the Board: Promoting Accountability in Corporate Governance. Iowa Law Review, Vol. 92, p, 105, 2006; Boston College Law School Research Paper No. 102. Available at SSRN: https://ssrn.com/abstract=924923

Renee M. Jones (Contact Author)

Boston College - Law School ( email )

885 Centre Street
Newton, MA 02459-1163
United States
617-552-6374 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
433
rank
64,940
Abstract Views
2,651
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information