Corporate Governance

McPadden v. Sidhu and the Absence of Director Duties

By J. Robert Brown

We have been talking in recent days about the Bailout Bill and the failure of Congress to fix a serious systemic problem with the current state of corporate governance.  Financial firms have been failing in large numbers apparently from having taken excessive risk.  While its possible that the boards of these companies knew about the risk and ignored or acceded to it, the more likely explanation is that the board was unaware.  That could only be the case because state law didn't require them to know and, in fact, under Delaware law, there is no obligation on the part of the board to seek out particular information or oversee the risk positions of financial institutions. 

We have two posts today that examine McPadden v. Sidhu, a case that illustrates the low level of behavior required of directors.  The first post is by Joseph Aguilar, a student who has recently joined the staff of The Race to the Bottom. 

Full post as published by The Race to the Bottom on October 15, 2008 (boomark / email).