Corporations - Outside Directors' Liability for Breach of Fiduciary Duty to Investigate
Wells, Roger W.
INTRODUCTION|In explaining the role played by outside directors, who are those directors not involved in the everyday management decisions of the corporation, Lord Boothby stated: No effort of any kind is called for. You go to a meeting once a month in a car supplied by the company. You look both grave and sage, and on two occasions say "I agree," say "I don't think so" once, and if all goes well, you get $1,440 a year. If you have five of them it is total heaven, like having a permanent hot bath. Other writers have characterized outside directors as having little time to spend on their duties, as being controlled by the executive officers, and as failing to represent the true interests of the stockholders. Despite these characterizations, state courts have generally failed to find outside directors liable for a breach of duty. Federal courts, on the other hand, with the aid of the federal securities laws, have not shown this same reluctance. This dichotomy of state-federal standards was complicated when the United States Supreme Court held that, absent a violation technically covered by the federal security laws, state courts are the proper forums to hear complaints involving a breach of a director's fiduciary duties. Thus, plaintiffs seeking damages for such breaches may find themselves without a forum that will afford them relief. In response to this dichotomy, writers have been urging the adoption of a single federal corporate law. Such a...
13 Creighton L. Rev. 383 (1979-1980)
Creighton University School of Law