On The Duty Of Directors' Diligence

In addition to the introduction and conclusion, this paper contains three sections: the theoretical foundation of the duty of care, the specific content and application, the relevant opinions and suggestions. Theoretical foundation includes Agent, Trust and Appointment. Agent is the mainstream view of the common law when the directors perform their duties with the other company, but Chinese directors are not agents. Trust is the dominant view of Anglo-American law when the directors govern the properties of company, but the ownership of those properties do not owe to the directors, and the directors manage the risk actively. Appointment is the mainstream view of Japan, this view is consistent with the other concept of civil law and company law, so this article regards the Appointment as the theoretical foundation of the duty of care.The specific content of the duty of care includes skill, diligence, care and supervision. For the general directors and specialistic directors, the duty of skill should adopt objective criteria. The duty of diligence for directors includes acquiring essential date, attending the board of directors actively and discussing the proposal fully. The duty of care is to make reasonable decisions in favor of the best interests of the company, which the directors consist with the acquired data. The duty of supervision includes directors supervising managers and independent directors supervising inside directors, the former depends on internal controls of the company, and the later depends on the independent announcement and collecting right to vote. The application of the duty of care is precondition to abiding the duty of loyalty, is to decision-making process rather than the result, is to punish the malpractice of directors.Related suggestions include perfecting the provision of the duty of care, the court adapting business judgment rule prudently and the articles of association limiting the liability of directors. The company law and the institute of directors should specify the provisions of the duty of care. The court should prudently adapt business judgment rule, focusing on procedural judgment for the directors. The articles of association should limit the liability to give full consideration to the affordability of directors and enhance the sense of responsibility of directors, at the same time the company can disperse losses by the directors’ and officers’ liability insurance.