The Curious Case of Directors' and Officers' Liability for Supervision and Management: Exploring the Intersection of Corporate and Tort Law

Abstract

Directors’ and officers’ liability under corporate and securities laws continues to be a hotly debated subject. Yet, their liability toward non-shareholder third parties under common tort law and statutory provisions has generated relatively modest scholarly interest. Thus, it has gone mostly unnoticed that corporate directors and officers can be held personally liable in tort to non-shareholder third parties based on failures in exercising their core corporate duties - supervision and management.However, as this article explains, the current liability regime in this area is in need of repair. It fails to distinguish between the corporation’s duties and the duties of directors and officers, neglects the separate corporate personality of the corporation, unduly shifts the risk of doing business to directors and officers, and undermines the heightened liability protections provided to directors and officers by corporate laws. Consequently, a new approach is required. This article proposes a novel model for corporate liability that is centered around the nature of directors’ and officers’ duties and focuses on the individual’s state of mind. At its core, the proposed model is based on the belief that in order to preserve the corporate shield, liability standards in tort law should not conflate the standards imposed on individuals with those imposed on directors and officers.