The Research On Director’s Duty Of Diligence

As the most flexible, fundamental and effective form of business organization,the corporation has a very important role in promoting social and economicdevelopment. In the modern corporation, the fact that the general meeting ofshareholders has been in some sense substituted by the Board of Directors in aspect ofcontrolling the whole corporation has become the core of corporate governance. Inorder to promote the director to fulfill the duty and responsibility for the company andprevent abusing the authority that law and articles of association entrusted, thecompany laws in various countries have strengthened the director’s duty and theresponsibility, particularly in Britain and America and other developed countries,which have clarified the director’s duty and responsibility. Comparatively speaking,the regulation regarding the director of company law in China is quite rough. InChina’s “Corporation Law”(2005), article148.1, it is clearly said that directors ownduty of loyalty and diligent to the company. However, there is no further regulationon the meaning, content, standard as well as the responsibility of diligent duty. So it isnecessary to make overall and systematic researches into the legal system ofdirectors’ duty of diligence. This paper intends to improve the system of directorsdiligence obligations on the basis of advanced foreign legislative experience and thespecific situations in China. Hereby, the norm of director’s duty of diligence in ourcountry could supervise and urge the directors in a real sense rather than discouragethem.The paper applies the comparative approach, the method of law and economicsanalysis and method of interest balancing in the study of the duty of diligence. Underthe guidance of these methods, the train of thought of this paper is:First, it introduces the basic theory of the director’s duty of diligence. This partdiscusses the concept, history and legitimacy of the director’s duty of diligence.Moreover, it focuses on demonstrating the legitimacy of the director’s duty of diligence from the view that the relationship between the directors and the company,law and economics, the legal value and system function. This part lays the foundationfor further study.Then, the author discusses the judgment standard of director’s duty of diligencefrom the following three aspects: First of all, it separately introduces the judgmentstandard of director’s duty of diligence in the United Kingdom, the United States,Germany and Japan. Then comparative analysis is made on their respectivecharacteristics and concluded with a summary. Secondly, Business Judgment Rules isdiscussed from the aspects of the applicable conditions, features, and the relationshipwith director’s duty of diligence. Thirdly, it shows the relevant regulations in ourcountry and points out the inadequacies of them.Moreover, this paper still researches on the civil liability of breaching director’sduty of diligence. The author analyzes constitution factors, accountability means,exemption mechanism of civil liability for breach of duty of diligence. Also, itfocuses on the restriction and exemption of the director’s offense of duty of diligence,pointing out its inherent rationality and specific ways used to limit and exempt thedirectors’ responsibilities. In addition, the relevant legislations of China on thedirectors’ responsibility are introduced and the inadequacies are also be pointed out.Finally, on the basis of comprehensive analysis of the foresaid content, in viewof the inadequacies in our company law on duty of diligence, The proposal accordingto the situation in China is made that we should explicitly formulate the legalrelationship between the director and company, establish the judgmental standard andthe scope of duty of care, then draw reference from the Business Judgment Rule andconsummate the civil liability system and so on.Based on such thoughts, the author does the comprehensive analysis on thedirector’s duty of diligence. The conclusions are as follows: Firstly, the judgmentstandard of director’s duty of diligence is an important and prevalent question inmany countries. Our Company Law should take the objective and subjectivecomprehensive standard into account. That is, take an objective standard in principle,supplemented by the subjective standard. Secondly, Business Judgment Rules is theexemption system that is provided to the director by the court. Business Judgment Rules has rich connotation accepted by many countries in the world. Therefore,China’s Company Law should also use it for reference. Finally, in order to avoiddiscouraging directors or hurt their innovation capability, it’s necessary to formulaterelevant clauses on limit and exempt the directors’ responsibilities.