The Capricious Cushion: The Implications of the Directors and Insurance Liability Crisis on Canadian Corporate Governance

One of the clearest legacies of the growing concern expressed over the international competitiveness of Canadian and American businesses has been the urgency it has lent to a very old debate respecting the efficacy of the apparatus used to govern the business and affairs of large, public corporations. For instance, Michael Porter, one of the most articulate if not the most prolific of the new competitiveness scholars, has suggested that American economic performance could be improved by enhancing the performance of the traditional corporate governance apparatus. In this respect, his suggestions closely track the thrust of recent reform initiatives proposed by investors and regulators who seek to increase the performance of the board by making it more responsive, indeed responsible, to shareholder interests. Although some of the current critics of the corporate board have placed exclusive faith in the ability of market mechanisms to ensure heightened board effectiveness, most initiatives rely to some extent on strengthened legal duties and responsibilities to achieve this task. And, as measured by the growing willingness of both courts and securities regulators to impose liability on directors for failing to review diligently various corporate transactions (i.e., self-interested transactions, public financings, etc.), it is clear that the reformist calls made by these critics are slowly but surely being heeded. Paralleling the trend to increased legal liability of boards for actions that are inimical to shareholder interests has been an equally clear trend towards enhanced legal responsibility for corporate conduct deemed contrary to broader stakeholder or community interests.