Vanderbilt Law Review

First Page



Debate continues to rage over limited shareholder liability and the social costs it imposes.' While proposals flourish for imposing liability on shareholders to reduce these costs, little attention has been devoted to a more promising solution: vicarious tort liability for high- ranking corporate officers. Limited shareholder liability produces benefits, but it also inflicts costs, including encouraging excessively risky corporate activity. These costs are most pronounced in the tort context because potential tort victims rarely can protect themselves by monitoring corporate activities or bargaining with corporate actors. Commentators disagree on limited shareholder liability's net impact on social utility and what, if anything, should be done to change limited liability. Some defend the current regime as efficient or at least preferable to alternatives, even in the tort context. Others propose curtailing limited liability, arguing that vicarious liability for corporate torts ought to extend to some or all shareholders in closely held corporations, or that courts ought to "pierce the corporate veil" more often. Still others have gone much further, arguing that liability for corporate torts should extend to all shareholders. Few, however, have seriously considered extending vicarious liability to the firm's other primary stakeholders, corporate management. Most who have addressed the idea have dismissed it with little analysis. In this post-Enron environment of concerns over corporate accountability and participant behavior, it is time to take seriously the option of holding top corporate officers responsible for the torts of their enterprises.