Reexamining Company Directors’ Duty Of Care And Diligence:Standards And Characterization

The corporate governance structure in China has gradually improved in wake of development of economic-oriented market.Nevertheless,the improvement of the corporate governance structure does not mean the perfection of the corporate governance mechanism.The duty of diligence of directors,therefore,has become one of the important legal systems for protecting the interests of the company and the rights of investors.However,in reality,the vague and unclear standard of the duty of diligence of directors makes it difficult to clarify their behavior and responsibilities,thus reducing the operational efficiency of the company and the trust of investors.Hence this article aims to make a research on and analyze of,the standard of the duty of diligence of directors to seek the more clear and comprehensive standards,in order to improve the quality and efficiency of corporate governance.Firstly,this article sorted out the concept and basic elements of the duty of diligence of directors and analyzed its connotation.Then,through comparative studies of the duty of diligence of directors in the common law system and the civil law system,the standards of the duty of diligence of directors for listed and unlisted companies in China were explored.The article found that different countries have different provisions for the standard of the duty of diligence of directors.The standard in the United States is relatively strict,with three types of standards,but the mainstream standard is the moderately strict "reasonable person standard".The standard in the UK is relatively lenient,with subjective evaluation criteria for directors at first,and gradually introducing objective standards.The standard in Germany is stricter,and the "professional rational person standard" must be met according to legal provisions.Japan’s law does not stipulate the duty of diligence of directors,but it can refer to the duty of diligence provisions of the supervisory committee and require the behavior of directors to meet the "ordinary prudent person standard".In China,the standard of the duty of diligence of directors has not been explicitly defined in various laws,but the Securities Law has made incomplete enumerations of the types of diligent behavior of directors in specific decisions.In accordance with current binding laws and empirical research,it can be found that high requirements for the duty of diligence of directors of listed companies in the judicial practice in China,and the Courts have used words such as "good faith","prudence",and "reasonable" to describe the standard of the duty of diligence of independent directors in the judgments.However,the more elucidated and enumerated standards of the duty of diligence of directors in China,to major extent,is still required.Subsequently,this article analyzed and listed the existing problems of the current standard of the duty of diligence of directors in China.It was found that there are three problems with the standard of the duty of diligence of directors in China:firstly,normative legal documents lack judgment and behavioral standards for the duty of diligence of directors;secondly,the extension and boundary of the duty of diligence of directors and the duty of loyalty are not clear;thirdly,the application of commercial judgment rules in judicial practice is unreasonable.These problems have given rise to negative impacts on the development of the rule of law in China.In response,the article draws on the beneficial experience of the rule of law in foreign countries and proposes suggestions for the improvement of the standard of the duty of diligence of directors in China.In chapter four,the article discussed and elucidated the justifications of enhancing the languages of law and judicial practices related to director’s duty of diligence by specification,personalization,and standardization.Specifically,in the next two sections,the article proposes to classify and standardize the duty of diligence of directors in China,and to construct a model of the behavior of the duty of diligence of directors.It also proposes to deepen the standardization of decision-making behavior by regulating "expressing opposition," and to include "raising multiple solutions" in the judicial review standards of the duty of diligence of directors.Additionally,it suggests to build a system of director reputation management and establish a judicial relief mechanism for directors who perform their duties diligently.The article also suggests abandoning the use of business judgment rules as a basis for legal reasoning in judicial judgments.These suggestions are expected to improve the level of corporate governance in China and promote sustainable economic development.