Research On The Director’s Duty Of Care

Company is the most important investment and organizational tool in themodern commercial society. It is a complex network of relationships, containing avariety of social values and interests, playing a very important role in modern marketeconomy. In order to make directors fulfill their duties and obligations rather thanabuse the constant expansion of the power that granted from the law and associationunder the establishment of ‘directorate-centrism’ in modern corporation governmentstructure, the modern laws of various countries have intensified the director’s dutiesand liabilities. But meanwhile, the modern corporation legislation also pays attentionto balance this intention properly so as not to discourage the directors. Comparativelyspeaking, the norm about director’s duties in Chinese corporation law legislation isgeneral and rough, it is necessary to make systematic researches on director’s duty ofcare. This paper intends to study further at director’s duty of care, and balancing thisintension properly by constituting a set of logical standards and subsidiary systems tosupervise and urge the directors in a real sense.The paper systematically discusses the director’s duty of care. In the introduction,the reason for intensifying and balancing and the deficiency of the legislative norm onthis issue in our country are fully analyzed. The conclusion summarizes up briefly thewhole text. As for the body, it is divided into four chapters. In the first part of thearticle expounds the basic theory of the directors’ duty of care. The second part makesclear that our country should establish the standards of the duty of care. The third partelaborates the content of clear duty of care. The fourth part elaborates the nature andthe constitution of the director’s liability of offending the duty of care, and make clearour country should introduce the legislation limiting the liability of directors.The first part is the general introduction of director’s duty of care. First of all, itmakes clear the meaning of duty of care, which means the directors should fulfilltheir responsibilities diligently and cautiously and have a certain skill. First, our country’s directors’ duty of diligence is consistent with Anglo-American CorporationLaw’s directors’ duty of care, just because of our language habit and legislativecoherence is different from that of American. The duty of care differs from thedirectors’ duty of loyalty. Duty of care is the requirements of management capacity,focusing on diligence, caution and specific skills. The duty of loyalty is the moralrequirements, focusing on loyalty to the company, when the individual interest isconflict with the company’s profit, the interests of the company should be the firstplace. And it lists various doctrines confining the foundation of duty of care and getsconclusion on the basis of evaluation, our country should adopt the‘special-relation-doctrine’. Finally, it makes clear the value and function of duty ofcare.The second part makes a study on the standards of the director’s duty of care.The standard is the core content of the duty of care, directly relating to liability ofdirector, guiding behavior choice of directors, influencing the final effect of corporategovernance. First, it introduced the developments of the standard in Britain, theUnited States, Germany and Japan. Although they are different, on the whole haveobjective trend. Secondly, it analyzes the reasons of objective trends, it is derivedfrom the internal power change. Company power passed from shareholders to theboard of directors, the power of board of directors rapidly expanded, in order toprevent the abuse of power damaging the interests of company and shareholders, thelaw of each country strengthen the duty of care. Finally, it suggests our country adoptcomprehensive standard which is based on the objective standards, through drawinglessons from foreign experience.The third part makes a study on the content of the director’s duty of care. First, itdescribes the current situation of China’s legislation on duty of care. They arescattered, not formed a scientific system. They are unable to meet requirement of thecommercial practice. Last, it objectives the standards of the three types furtherthrough summarizing the norms of duty of care in both the case law and the writtenlaw in the Anglo-American Legal System. Diligence requirement means the directorsmust perform their duties to some degree of efforts, it is a kind of positive behaviorrequirements. Caution requirement means the directors must work as carefully as the ordinary prudent man in similar circumstances. Skill requirement means that thedirectors are required to have certain knowledge and experience to be a member ofthe board of directors. Due to the internal power changes of the company. Directorchanges from initial amateur job into professional position.The fourth chapter investigates the liability and the restriction of the director’soffense of duty of care. For one thing, it summarizes the nature and the constitution ofthe director’s liability. For another thing, it introduces the legislation about restrictionon the liability of directors when offending the liability of duty of care. After thecomparison and evaluation to the legislations it achieves conclusions. First, therestriction on the director’s liability should only be applied on the offending of dutyof care but not on the offending of duty of loyalty. Secondly, adds business judgmentrules to Chinese corporation law. Thirdly, restricting the liability of offending the dutyof care or not is part of the autonomy of the corporation itself and would be moreproper if making regulations by the shareholders through the corporation’sconstitution. Fourthly, there should be norm regulating that restricting the director’sduty should have a certain standard in prevention of the norm of the duty of care fromhaving not the duty in some extent to correspond with it.