A Behavioral Analysis of Directors' Liability for Negligence

Directors of large corporations are sometimes compared, with considerable justice, to the supreme party council in a one-party state. Potentates of countries commonly regarded as dictatorial might look with envy on American corporate directors not only for the funds of money of which they dispose, but also for the security of their tenure.' But there are many ways in which directors are unlike a dictatorial presidium. One of the distinctions, and perhaps the most important, is directors' liability to pay damages when they make mistakes.2 Professor Joseph W. Bishop, Jr., writing of the "failure of directors to direct," has declared that "the only legal deterrent to such conduct, and perhaps the only deterrent of any sort, is the fear of civil liability. ' '3