# Excessive risk `kaal:entity:excessive-risk` **Status.** derived This node is assembled mechanically from the 11 claims that carry the concept tag `excessive-risk`. 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 11 claims across 2 works, 2010 to 2013. **2010** - [1558614-005](https://wulfkaal.github.io/claims/1558614-005) [condition/argued] *(failure mode)* -- Law generally declines to adopt a general principle barring managers from incurring risk above a defined standard because such a standard is hard to define; corporate law instead insulates managers' risk decisions through the business judgment rule. > The law does not do so in most instances because defining such a stan- dard is difficult. Corporate law instead protects the risk decisions of bank managers from challenge through a concept known as the "business judgment rule." 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 - [1558614-012](https://wulfkaal.github.io/claims/1558614-012) [mechanism/argued] -- Hindsight bias exerts a stronger influence on how excessive risk is defined in countries culturally predisposed to dwell on their own past, while countries oriented toward a future unlike the past more easily dismiss earlier financial lessons as irrelevant. > Hindsight bias and other concep- tual approaches rooted in past experience—including valid lessons learned from past experience—may exert a more powerful influence in a country that is otherwise predisposed to be concerned with its past 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 - [1558614-013](https://wulfkaal.github.io/claims/1558614-013) [mechanism/argued] -- Limited liability lets managers and shareholders capture most of the benefits of excessive risk taking while not bearing all of its costs, which is one explanation for why bankers take excessive risk. > Accordingly, both managers and shareholders of a corporation enjoy most of the benefits of excessive 62 risk taking but do not bear all of the costs. 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 - [1558614-015](https://wulfkaal.github.io/claims/1558614-015) [failure/argued] *(failure mode)* -- German corporate law's historical focus on conflicts between controlling and minority shareholders leaves it poorly equipped to address managerial abuse of power, including excessive risk taking by managers. > Ar- guably, a legal system that focuses on the interaction of controlling and minority shareholders is not as well equipped to deal with mana- gerial abuse of power, including excessive risk taking by 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 - [1558614-016](https://wulfkaal.github.io/claims/1558614-016) [mechanism/argued] -- U.S. corporate law centers so heavily on shareholder manager conflicts of interest that, absent a demonstrable conflict, it treats risk taking as a situation where managers' and shareholders' interests are aligned and legal intervention is unwarranted. > Risk taking is one of those situations where U.S. corporate law assumes that managers' and shareholders' interests are aligned, or at least not sufficiently di- vergent that legal intervention is justified. 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 - [1558614-017](https://wulfkaal.github.io/claims/1558614-017) [failure/argued] *(failure mode)* -- For different structural reasons in each country, corporate law in both Germany and the United States has little to say about the problem of excessive risk. > Thus, perhaps for differ- ent reasons, corporate law in both countries may have little to say about the problem of excessive 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 - [1558614-022](https://wulfkaal.github.io/claims/1558614-022) [definitional/argued] -- The German and U.S. business judgment rules diverge most sharply at the German rule's fifth element, the requirement of no hazard decision or excessive risk taking, which German law presumes but allows to be rebutted. > As pointed out below, it is in this last element where the business judgment rules in the United States and in Germany diverge the most. German law presumes no hazard and excessive risk, but this presumption can be rebutted. 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 - [1558614-026](https://wulfkaal.github.io/claims/1558614-026) [condition/evidenced] -- Under the German hazard decision doctrine, no manager acts reasonably, whether a bank officer or a board member, if the risks taken on the corporation's behalf would destroy the corporation should they be realized. > no manager, regardless of whether the manager is a bank officer or board member, acts reasonably if he or she takes on risks on behalf of the corporation that, if realized, will result in the demise of the cor- 130 poration 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 - [1558614-033](https://wulfkaal.github.io/claims/1558614-033) [failure/argued] *(failure mode)* -- U.S. courts applying the business judgment rule give little or no weight to the overall health of the company or to whether the risk jeopardizes the company's very existence, so managers are permitted to incur most of the risks they wish to incur. > courts applying the business judgment rule in the United States give little or no consideration to the overall health of the company or even whether the risk is jeopardizing the company's very existence 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** - [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) ## 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/excessive-risk.md | sha256sum **Canonical form.** This markdown file is the canonical hashed representation of this entity node. Its sha256 is the content hash.