Analysis And Significance Of Standards Of Duty Of Care Of Case Law In The United States

With the development of the company's governance, the corporate board is granted wide powers to favor business operations. On the other hand, each country's company law obligates directors to their corporations in order to prevent disadvantages arising from the expansion of the board's power. Strictly obligating directors to perform their duties carefully may reduce the risk that the company and shareholders suffer the loss caused by directors. However, we should also see that business situations are more complicated and changeable in current society with economic globalization, requiring directors'every business decisions or activities successful is unrealistic, and over-strict liability may result in directors over-caution in company operation, this consequence is not favorable for the maximization of benefits of the company and shareholders. Article 148 of the Company Law of the People's Republic of China stipulates diligence obligation (also called duty of care) of directors, supervisors and senior-managers, but the behavior standards of duty of care is not made detailed, which makes this provision is lack of practicability.Thus, in order to protect the interests of the company, shareholders and the third persons, perfect directors'duty of care in our company law, I make some suggestions on the basis of referring to standards of duty of care of case law in the United States.The first part of this article is about the fundamental theory of the directors'duty of care. First of all, the concept of the director is that a person who is appointed or elected to sit on a board that manages the affairs of a corporation or other organization by electing and exercising control over its officers. Then, from the standpoint of the relationship between directors and the company, introduce the theory origin of the directors'duty. There are three mainstream theories: the agent relationship, the trust relationship and the appointment relationship. I believe that each theory has its rational part, but each theory does not fully express the relationship between directors and companies. Directors'duty is a new legal obligation, whatever fiduciary duty or agent obligations are not suitable. The second part outlines director's duty of care of company law in the United States. Respectively from both statutory and case law in the United States, director's duty of care of company law is introduced. Statutory provisions are abstract principles, abstracted from a large number of precedents. Understanding and researching the relevant provisions of case law, it is a best way to understand standards of directors'duty of care. At the last, I give a brief description of Business Judgment Rule and director's exemption system. The two rules are important parts of directors'duty of care in the United States.The third part studies on judgment standards of directors'duty of care of case law in the United State. First, I explain the importance of theory for creating coherence and outline a simple theory of group decision-making that provides a context for my analysis of duty of care jurisprudence. Second, I use theory and empirical research to evaluate the likely effects of current duty of care jurisprudence on the quality of corporate board decisions. Certain aspects of current duty of care jurisprudence impose burdens on boards without making their decision-making procedures more effective. Specifically, the law's treatment of long board meetings as evidence of careful decision-making and its failure to protect directors from the risks of taking notes in board meetings places burdens on corporate directors without guiding them toward effective decision-making behavior. Other aspects of duty of care jurisprudence are arbitrary because they cannot be justified on the basis of existing empirical research. In particular, empirical research provides no support for the law's treatment of obtaining outside financial advice and notifying directors in advance of the matters to be discussed at meetings as evidence of careful decision-making. On the other hand, other aspects of duty of care jurisprudence accurately identify director behaviors that reflect careful decision-making: considering multiple courses of action, asking questions, and expressing disagreement.The fourth is on the reflection and improvement of director's duty of care in our company law. First, on the basis of analyzing the present legislative situation of directors'duty of care, I point out some disadvantages, (1) The concept is not clear. As a new introduction into our company law, it is necessary to define its meaning in order to reflect the rigor of the law. (2) The judgment standards are not stipulated. Without judgment standards, the provision has only meaning of declaration. (3) Lack of relevant provisions of duty of care, such as the burden of proof, penalty standards, directors exemption, etc. Second, the references from judgment standards of directors'duty of care of case law in the United States, improve our relevant provisions. (1) Reference on legislation: changing result-oriented mode to procedure-oriented mode; strengthening the performance of directors'duty in process; adopting the similar standards of the United States; supplementing provisions on directors'exemption. (2) Reference on legislative mode. China is a statutory country, unlike the United States. The standard of duty of care is closely related to the development of the modern corporate governance. However, "Company Law" changed frequently is clearly inappropriate. I believe that the judicial interpretation as supplement of directors'duty of care is more appropriate. (3) Reference on the standards of duty of care. Our standards should be also separated into information standards and process standards. Information standards should limit to the information that the board could receive during that time, and take into account the company's industry, the company's size, the type of decision being made and other factors. Process standards, we should treat the following as evidence of careful decision-making: discussing multiple courses of action, asking questions, expressing disagreement, using a methodical decision making procedure, and producing a detailed written rationale for decisions.