Empirical Study on Outside Director Liability Findings In practice,the legal liability outside director faces rarely lead to personal payments. Suits could pose the risk of an out-of-pocket payment. o Shareholder Suits:Private Enforcement Public-minded Litigation:Public Enforcement D However,in most cases,D&O Insuranace is sufficient to cover legal expenses and damages. Practical Outcome Analysis o"Functional Convergence"on low (but non-zero)risk o Can the low liability risk motivate outside directors to be vigilant? D The reputational concern Public-minded litigation o When a governmental agency brings a civil lawsuit. A tiny risk of criminal prosecution for outside directors D Procedural Consideration:The "American Rule" Page·6
Page 6 Empirical Study on Outside Director Liability Findings In practice, the legal liability outside director faces rarely lead to personal payments. Suits could pose the risk of an out-of-pocket payment. Shareholder Suits: Private Enforcement Public-minded Litigation: Public Enforcement However, in most cases, D&O Insuranace is sufficient to cover legal expenses and damages. Practical Outcome & Analysis "Functional Convergence"on low (but non-zero) risk Can the low liability risk motivate outside directors to be vigilant? The reputational concern Public-minded litigation When a governmental agency brings a civil lawsuit. A tiny risk of criminal prosecution for outside directors Procedural Consideration: The "American Rule
Theoretical Pros and Cons of Outside Director Liablity Outside Director Substantial Risk Liability Prons Motivate the outside director to be more attentive Directorship:decline Cons Decision-making:counterproductively cautious Page7
Page 7 Theoretical Pros and Cons of Outside Director Liablity Outside Director Liability Substantial Risk Prons Motivate the outside director to be more attentive Cons Directorship: decline Decision-making: counterproductively cautious