A Study Of The Standard Of Director's Duty Of Care

To a certain extend, directors can determine whether a corporation could subsist and maintain prosperous. Thus supervising corporation's long-term strategy and retaining, assessing as well as inspiring administrative personnel of high rank are the two main functions of the board of director. Economic integrations are now prevailing among the world. In order to answer up to the pressure coming from investors and competition, the board has making constant changes itself and gained much control of the corporation. The fact that the board has in some sense substituted the general meeting in controlling the business of corporation has became the corn of corporate governance. Director is now playing an ever-important role. They need to make constant adjustment till the corporation can effectively compete throughout the world market. In order to reduce the cost of agency, stockholders designate directors to form the board, thus supervise the managers of the corporation. In the purpose of reducing moral risk, all nations prescribe their laws with rigid duty for directors. Modern theory of corporation distinguishes the two different director's duties: duty of care and duty of loyalty. Loyalty duties require directors to maintain fidelity for the benefit of the corporation. Duty of care has all manner of modes. Their common ground is to ask directors to be rational and cautious when considering their responsibilities and activities, and in the same time remain moderate independence.The seed of Western Commercial Corporation has been diffused in the middle ages. After developed for several hundred years, western countries have not only established a relatively perfect corporate legal system, but also formed some fairly good commercial traditions through out the ideological sphere, which helps making the rules for operating mechanism of the inner organization of the corporation reasonable and well-known. Whereas in our country, good commercial traditions are rarely being seen. Modern enterprise system has not yet established. In China's《Company Law》(2005), article 148.1, it clearly stipulates that directors own duty of loyalty and duty of diligent to company. However, there is no further regulation for the meaning, content as well as the standard of diligent duty.Director's duty of care is the most crucial segment for corporate institutions. The study of it is also one of the most important issues for corporation governance. The research can be enormous and broad. The purpose of this article is to strive for the particular standard of duty of care, thus accommodate the need of China's legal practice. Based on such thought, the frame of this article is arranged as follows:The first chapter brings forward some basic concept for directors and analyses the legal status of directors in corporation. The"Trust"theory from the common law has nothing more than a different angle in viewing the relationship between directors and corporations when comparing to the"Delegation"or"Agency"theory from the civil law . And this does not change the essence of director's duty. The first part of this article also gives a brief illustration for the legal basis of director's duty care, and defines the range for such a duty.The second chapter gives a concept for the standard of director's duty of care and discusses the role of law in corporate governance, and then it shows a demand of giving a particular standard of director's duty of care. Finally it analyzes the actuality of China's corporate governance and the reasons for the existed problems, all of which gives a support for the forth chapter of the article.The third chapter shows the history and current developing trend of the standard for director's duty of care in the common law and civil law from the view of comparative law , especially it analyzes the legal statutes in China.Based on the legislation and legal practice from abroad, the forth chapter is about the concrete system relating to the construction of the standard of director's duty of care in China's Company Law. The standard of director's duty of care in our country cannot be simply duplicated from others. It has to be regulated according to the real situation in China, objectifyjing the standard of duty of care more subjective as soon as possible.