An Empirical Research On Directors’ Duty Of Care

Directors’ duty of care is one of the important mechanisms of corporate governance.It, for the purpose of regulating and protecting directors, focuses on achieving the rightbalance of the rights and obligations between the company and its directors. The amended"Company Law" promulgated in2005brings in for the first time directors’ duty of care,which is an important feature of the reform. However, the provision on directors’ duty ofcare is of principle and lack of details, which does not set out the connotation andextension of the duty. There is also no judicial interpretation from the Supreme Court. Soin practice confusion and controversy is inevitable. This paper, by looking at the cases ondirectors’ duty of care, analyzes the way in which courts approach the judicial test of theduty of care in practice, discovers its shortcomings, and makes suggestions onimprovement to better serve the judicial practice.This paper starts with court cases collected through various means. In this part, itfirstly describes research methodology, the means through which the cases are collected,and selection methods. The collected cases provide reliable first-hand materials for thefollowing analysis. Based on these typical cases, it then produces statistics on the successrate of the lawsuits and time distribution, etc, in order to draw some preliminaryconclusions.The second part of the paper summarizes sample cases. It presents in tabular form14sample cases from the aspects of litigation category, company category, alleged facts,reasons for judgment, verdict and other aspects, so as to empirically facilitate the furtheranalysis below. It then summarizes the characteristics of the cases.The third part analyzes the components of the directors’ duty of care and the judicialtest on the duty. First, it describes the components of the duty, followed by an analysisand summary of the way in which judges apply the components of the duty in practice bypresenting the collected cases. Finally it presents the judicial test which judges use inpractice in relation to the directors’ duty of care.The final part of the article makes a brief introduction on the "business judgmentrule" which is used in the Anglo-Saxon jurisdictions and presents the inadequacy of the"normal business behavior" norm which is commonly applied by judges in China. It thenrecommends that the Supreme Court should make a judicial interpretation on directors’duty of care, publish typical cases for guidance, choose a panel of jurors having businessbackground and localization Business judgment rule.