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

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