# Director liability `kaal:entity:director-liability` **Status.** derived This node is assembled mechanically from the 17 claims that carry the concept tag `director-liability`. It is a roster of what the corpus says under this term. It is **not** an adjudicated definition: no single statement here has been ruled canonical, and no first-appearance call has been made. Read the claims and judge for yourself. ## Every claim under this term 17 claims across 3 works, 2010 to 2013. **2010** - [1558614-006](https://wulfkaal.github.io/claims/1558614-006) [empirical/argued] -- Although the business judgment rule is articulated differently in the two countries and German law leaves somewhat more room to challenge risky decisions, in both the United States and Germany the rule is highly protective of corporate managers. > the business judgment rule is articulated differently in the United States and in Germany, and there may be more latitude to challenge some risky decisions in Germany, but in both countries the rule is highly protective of corporate managers Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-023](https://wulfkaal.github.io/claims/1558614-023) [failure/argued] *(failure mode)* -- Because U.S. law frames the inquiry around corporate waste, and most risk taking does not meet the waste standard, showing that a decision was hazardous or excessively risky is not enough to rebut the business judgment rule in the United States. > Because most risk taking does not meet the definition of corporate waste, a showing of hazard or excessive risk is insufficient to rebut the 98 business judgment rule in the United States. Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-025](https://wulfkaal.github.io/claims/1558614-025) [failure/evidenced] *(failure mode)* -- The U.S. requirement that directors act on an informed basis is watered down because many states permit charter provisions exculpating directors from liability for breach of the duty of care, including the duty to act on an informed basis. > This requirement, however, is watered down in the United States by many states that allow corporations to adopt charter provisions that exculpate the directors from liability to the corporation for breach of a duty of care Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-032](https://wulfkaal.github.io/claims/1558614-032) [mechanism/argued] -- In the United States the duty to disclose risk indirectly generates risk monitoring, because directors who know they are responsible for disclosing risk have reason to monitor it even though corporate law imposes no explicit duty to monitor. > Directors thus may monitor for risk because they know they are responsible for dis- closing it. Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 - [1558614-039](https://wulfkaal.github.io/claims/1558614-039) [mechanism/argued] -- Delaware courts have not explicitly imposed a duty to monitor risk, but that omission may be moot: because failing to disclose risk violates federal securities law, unmonitored risk is likely to become undisclosed risk and therefore actionable. > In the United States, Delaware courts have not explicitly im- posed a duty to monitor risk. Because failure to disclose risk is a vi- olation of federal securities laws, however, this may be a moot point. Unmonitored risk is likely to be undisclosed risk. Painter and Kaal, Initial Reflections on an Evolving Standard Constraints on Risk Taking by Directors and Officers in (2010). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1558614 **2013** - [2317580-002](https://wulfkaal.github.io/claims/2317580-002) [failure/evidenced] *(failure mode)* -- The liability standard for breach of fiduciary duty is set so high that courts rarely find directors in violation, because only a board's sustained or systematic failure to exercise oversight can produce liability. > The standard for liability is so high that it is hard for courts to find directors in violation of their fiduciary duties.2 Only a board's sustained or systematic failure to exercise oversight can result in liability. Wulf A. Kaal, Elizabeth R. Malay, The Role of Corporate Integrity Agreements in the Expansion of Fiduciary Duties (2013). SSRN: https://ssrn.com/abstract=2317580 - [2317580-005](https://wulfkaal.github.io/claims/2317580-005) [mechanism/argued] -- Because directors contractually agree to increase compliance through an open door policy for the government, CIAs substantially raise the liability risk for companies whose directors did not act in accordance with their fiduciary responsibilities. > Because the directors contractually agree to increase compliance by way of an open door policy for the government,10 CIAs can substantially increase the risk of liability for companies whose directors did not act in accordance with their fiduciary responsibilities. Wulf A. Kaal, Elizabeth R. Malay, The Role of Corporate Integrity Agreements in the Expansion of Fiduciary Duties (2013). SSRN: https://ssrn.com/abstract=2317580 - [2317580-033](https://wulfkaal.github.io/claims/2317580-033) [mechanism/evidenced] -- In re Pfizer stipulates that for a company that executed a CIA the court will allow an assumption that the directors were fully informed and therefore willing participants in the corporate malfeasance, so that the CIAs themselves became the court's proof that the directors could have breached their fiduciary duties. > The court stipulates that in the case of a company that executed a CIA, it will allow an assumption that the directors were fully informed, and thus, willing participants in the corporate malfeasance. Wulf A. Kaal, Elizabeth R. Malay, The Role of Corporate Integrity Agreements in the Expansion of Fiduciary Duties (2013). SSRN: https://ssrn.com/abstract=2317580 - [2317580-035](https://wulfkaal.github.io/claims/2317580-035) [mechanism/argued] -- Courts assume that the boards of companies that executed a CIA have more knowledge and can exercise more control, and therefore hold those directors to a heightened fiduciary duty, rejecting directors' claims of ignorance because executing a CIA or a CIA like agreement means directors do know or should know about the noncompliance. > To summarize, courts assume that the boards of companies that executed a CIA have more knowledge and can exercise more control and should thus act with a heightened fiduciary duty. Directors are held to a higher standard if the company executed a CIA. Wulf A. Kaal, Elizabeth R. Malay, The Role of Corporate Integrity Agreements in the Expansion of Fiduciary Duties (2013). SSRN: https://ssrn.com/abstract=2317580 - [kaal-2013-acomparativeperspectiveo-001](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-001) [failure/argued] *(failure mode)* -- The nearly insurmountable standard for liability in oversight cases in the United States undermines the signalling of the expected standard of conduct, and this could have long-term implications for American corporate law. > The nearly insurmountable standard for liability in oversight cases and its effect on signalling the expected standard of conduct could have long-term implications for corporate law in the United States. Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) - [kaal-2013-acomparativeperspectiveo-005](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-005) [empirical/evidenced] -- Under Delaware law as applied in In re Citigroup, directors' incorrect evaluation of business risk and their inability to predict the future do not violate the duty of oversight, so the Caremark duty to monitor is not extended to business risk. > According to the Delaware Chancery court, directors' incorrect evaluation of business risk and their inability to predict the future did not violate directors' duty of oversight. Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) - [kaal-2013-acomparativeperspectiveo-006](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-006) [condition/evidenced] -- Losses alone are not sufficient to hold directors personally liable for taking risks that lead to those losses, because risk is inherent in maximizing shareholder value. > Losses alone were not sufficient to hold directors personally liable for taking risks that lead to losses because risk is inherent in maximizing shareholder value. Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) - [kaal-2013-acomparativeperspectiveo-010](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-010) [mechanism/argued] *(failure mode)* -- Directors who are inadequately informed about the expected standard of conduct will underestimate their personal liability exposure and engage in riskier behavior than is desirable for the company itself. > Inadequately informed directors may underestimate their personal liability exposure and engage in more risky behavior than is desirable for the company itself. Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) - [kaal-2013-acomparativeperspectiveo-012](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-012) [condition/evidenced] -- Under German law, directors' business decisions lose the protection of the business judgment rule where the business risk taken was inappropriately excessive, a standard German courts announced in ARAG/Garmenbeck. > explained that if the "business risk was inappropriately excessive," directors' business decisions are not protected under the 23 German business judgment rule. Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) - [kaal-2013-acomparativeperspectiveo-013](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-013) [empirical/evidenced] -- German commentators, whose expertise German courts rely on heavily, concluded after the financial crisis that managers do not act reasonably under the German business judgment rule if the risks they take on behalf of the corporation result in the demise of the corporation. > German commentators (contrary to their counterparts in the United States, German courts rely heavily on the expertise of commentators) concluded that managers do not act reasonably in terms of the German business judgment rule if risks Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) - [kaal-2013-acomparativeperspectiveo-017](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-017) [empirical/argued] -- Despite the limits of the comparison, had In re Citigroup and Disney been decided in Germany the allocation of liability would have been different, because German courts are generally more willing than Delaware courts to second-guess directors' decisions. > it seems difficult to escape the conclusion that had the two American cases, In re Citigroup and Disney, been decided in Germany, the liability allocation would have been different. German courts generally seem more willing to second-guess directors' decisions than Delaware courts. Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) - [kaal-2013-acomparativeperspectiveo-020](https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-020) [mechanism/argued] -- If the liability standard were lowered, directors and officers would take their increased personal liability exposure into account and could be incentivized to engage in less risky behavior. > Directors and officers would take their increased personal liability exposure into account and could be incentivized to engage in less risky behavior. Kaal, A Comparative Perspective on the Limitations of the Duty of Oversight – A Comment on Lisa Fairfax (2013) ## Verify Every claim above resolves to a record carrying a verbatim source quote, the sha256 of the source PDF, and a preformatted citation. Nothing here asks to be taken on trust. curl -s https://wulfkaal.github.io/entities/director-liability.md | sha256sum **Canonical form.** This markdown file is the canonical hashed representation of this entity node. Its sha256 is the content hash.