Abstract
Corporations' directors are expected to make decisions that produce the best outcome for their businesses. As such, law has a role to play, and it does so differently depending on the legal system concerned.
Common law jurisdictions generally refer to directors as fiduciaries . Directors have to comply with several "fiduciary duties", including a "duty of care" which regulates the care, skills and diligence that directors are show. Civil law jurisdictions, without qualifying directors as fiduciaries, have developed rules with the same aim.
Many of the decisions made by corporations do not involve boards of directors. Operational decisions are made by officers and employees. As such, the duty of care imposes the board to monitor these decision-makers.
The sub prime mortgage crisis, where many corporations were overexposed to low quality credits, caused massive defaults. This essay argues that the duty of care is inadequate to deal with the failures exposed by the financial crisis. To demonstrate this, it will focus on the United States as a sample of common law jurisdiction, where the courts have adopted a deferential approach to the business judgement of directors. It will then look to Germany as a sample of civil law jurisdiction, where judges' reactions to corporate governance failures have been much stronger.
