Study On Directors’ Liability For Corporate Risk Management

Study on Corporate Risk Management has become a cutting edge area in corporate governance research since Frank Knight proposed the innovative relationship among risk, uncertainty and entrepreneur ship. The financial crisis in 2008 reflected the deficiencies of corporate governance in US. By enacting the Dodd-Frank Act and related regulations, the US government reconstructed the corporate governance structures and executive compensation, aiming at improving the directors’ liability for risk management. This dissertation begins with the connection between the financial crisis erupts and the disadvantages in US enterprise risk management system, centers on the functions of directors in the risk oversight, and analyses the legal reform on the directors’duties in risk control.This article is divided into three parts. The first one concludes the main targets and characteristics in enterprise risk management theory. With the explanation of the typical principles and legal frameworks, it raises that the core value of the risk management is to keep its goal consist with the strategic development of corporations. Regarding directors as both the risk controllers and the risk producers, it puts forward the significance of regulating directors’liability for risk management from the legal perspective.Then, it discusses the legal reform on directors’duties in risk management from risk of decision-making and executive compensation. By reviewing the classic cases and the history of risk management judgment rules, it argues that the directors should be responsible for managing and monitor the establishment and operation of risk management. It evaluates the positive and negative aspects in US after optimizing the constitution of the board and broadening the path of shareholders exercising rights. From the angel of executive compensation, this article considers the role of directors in the procedure of risk identification and assessment, precaution, manage and feedback, and then appraises the incentive plans in risk management system.Last but not the least, this article investigates the legal regulation on directors’ liabilities for risk management in China, insists that we lack comprehensive legal framework and specific legal obligations, and presents the possibilities of localizing US legal reform. It suggests that China should constitute a legal system for director’s liabilities on risk management, centered on the corporate law, on the basis of the specialties of different industries, nature and sizes. In the end, this dissertation proposes that the globalization of the corporate governance leads to types of director risk management legal regulations with functional convergence and different in forms to realize pursuing Enterprise-wide Risk Management.