Frightened Directors

The newspapers have published photographs of directors, frightened directors, taken away in handcuffs by broad-shouldered men. These directors are not the subject of this contribution. They have been convicted or are suspected of fraud. It is generally only right and proper that they should be afraid, in view of their social downfall and merited punishment. This contribution is about company directors who act reasonably and yet are in the firing line, or at any rate believe they may be in the firing line. In other words, about directors who are afraid even though they have nothing to fear. If directors are too afraid of liability proceedings and other rules and regulations which attach consequences to their behaviour, side-effects lie in wait. In the case of directors these are manifested in undesirable risk-avoiding behaviour. Directors may shrink from risky but potentially very profitable decisions and choose the safer but less profitable route. This contribution shows that Dutch directors (and directors in other European countries) are indeed afraid. It focuses on the reasons for this fear. The author brings forward some solutions and advocates that liability law has to be applied appropriately in company law and that we must put moral indignation at the behaviour of directors, which is based mainly on certain incidents, behind us. With this contribution, that was given as a speech on 28 October 2005, the author accepted his appointment as Professor of Company Law at Erasmus University Rotterdam, the Netherlands.