Outside Director Liability: A Policy Analysis

Outside Director Liability: A Policy Analysis

Bernard Black, Brian Cheffins, Michael Klausner

Series number :

Serial Number: 

Date posted :

February 01 2006

Last revised :

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  • outside directors • 
  • liability • 
  • Corporate governance

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.

Published in

Published in: 
Publication Title: 
Journal of Institutional and Theoretical Economics
Vol. 162, 2006


Fellow, Research Member
Northwestern University Law School and Kellogg School of Management Law School