Director Liability

BLACK ET AL. 58 STAN. L. REV. 1055

3/9/2006 12:21:03 AM

OUTSIDE DIRECTOR LIABILITY
Bernard Black,* Brian Cheffins,** and Michael Klausner***
This Article give outs the degree to which international directors of public companies are exposed to out-of-pocket liability jeopardyâ€"the risk of paying legal expenses or damages pursuant to a judgment or settlement agreement that are non risey paid by the beau monde or another(prenominal) source, or covered by directors and officers (D&O) liability insurance. Recent settlements in securities class actions involving WorldCom and Enron, in which lead plaintiffs succeeded in extracting out-of-pocket payments from alfresco directors, have led to predictions that such payments will become common. We analyze the out-of-pocket liability risk facing international directors empirically, legally, and conceptually and show that this risk is very low, far lower than many a(prenominal) commentators and board members believe, notwithstanding the WorldCom and Enron settlements. Our extensive search for instances in which outside directors of public companies have made out-of-pocket payments turned up thirteen cases in the last twenty-five years. Most take fact patterns that should not recur today for a company with a state-of-the-art D&O insurance policy.



We vortex a detailed assessment of the liability risk outside directors face in trials under corporate and securities law, including settlement dynamics. We
* Hayden W. drift Regents Chair for Faculty Excellence and prof of Law, University of Texas Law rail; Professor of Finance, McCombs School of Business, University of Texas, Austin. ** S.J. Berwin Professor of Corporate Law, Cambridge University, United Kingdom. *** Nancy and Charles Munger Professor of Business and Professor of Law, Stanford Law School. Appendix A lists the firms include in the survey we conducted in connection with this Article. Many battalion at those firms were helpful to a degree that went well beyond answering our survey questions, and we...If you want to get a full essay, order it on our website: Ordercustompaper.com



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