Vanderbilt Law Review

First Page



The judiciary faces a difficult task in attempting to define the proper standards of conduct for corporate directors and officers. Although courts have enunciated various standards, the prevailing theme has been that corporate directors and officers are fiduciaries who have a "distinct legal relationship" with the corporation and its shareholders. As fiduciaries, directors and officers must con-form to the duty of care and the duty of loyalty. The business judgment rule, which creates a presumption of propriety for directors' and officers' substantive business decisions, developed concurrently with these duties. Several recent court decisions concerning corporate director and officer liability appear to have placed a greater duty on directors and officers to investigate, inquire, and more actively participate in corporate governance. In contrast, two recent state statutory amendments have lessened the fiduciary burden on directors and officers. Meanwhile, the business judgment rule remains a significant limitation on courts' ability to question the substantive business decisions made by directors and officers. These developments have evoked differing philosophical responses, the two most notable of which are the neoclassical model and the monitoring model.

This Special Project Note will discuss recent developments in three distinct areas of corporate law and will illustrate that many of the developments hailed as expressing a pervasive dissatisfaction with corporate governance actually are not significant deviations from the current law, but merely are clarifications of existing law." Part II of this Special Project Note will examine recent Delaware state court decisions and will evaluate their potential impact on corporate law. Part III will analyze three recent cases decided in jurisdictions outside Delaware and will compare them to Delaware law. Finally, Part IV will discuss two recent state statutory amendments that drastically affect the traditional law governing director and officer liability by effectively eliminating corporate directors'and officers' duty of care.