Assessing Delaware’s Oversight Jurisprudence: A Policy and Theory Perspective

The recent financial crisis has triggered a renewed emphasis on corporate \ndirectors’ duty to exercise oversight. In contrast to the area of discrete \ndecision-making, where academics only rarely dispute the board’s almost \ncomplete insulation from liability, there is considerable resistance to the idea \nthat oversight should be subject to equally strict limits to hold directors \nresponsible. Yet, Delaware courts have made it clear that they continue to \nseverely limit, and not expand, directors’ oversight liability, leading Delaware \nin the opposite direction than that which many of its critics would advocate. \nBoth policy and theoretical considerations, however, support Delaware’s \ndecision to maintain strict limits on oversight liability. Such restraints protect \ndirectors’ ability to exercise independent business judgment, encourage risk \ntaking and board service by qualified individuals, and prevent directors from \nassuming the role as insurers of business risks. In addition, limits on \noversight liability reduce monitoring costs and promote efficient functioning \nof boards. Thus, as this Article argues, Delaware’s current solution works and \nstrikes the correct balance between directors’ accountability and authority.

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