The Boundaries of Directors' Duty of Diligence: Responsibility Determination from the Perspective of Corporate Decision-Making Mechanism

Abstract

Although China's Company Law has established a basic framework for the duty of care of directors, there is still a lack of clear and specific standards for the boundaries and responsibility determination of the duty of care under the decision-making mechanism in the specific implementation process. This involves disputes over the allocation of corporate decision-making power and the choice of judgment criteria. The choice should be made based on the company's objective reality. Examining the composition of the elements of responsibility, subjectively it should be gross negligence and non-bona fide, and objectively, when evaluating whether the director has been diligent, one should not simply judge from the outcome, but should delve into the considerations and efforts in the decision-making process to fairly evaluate whether the director has fulfilled their duty of care. The business judgment rule essentially reduces the requirements of the duty of care for directors and serves to block liability. Therefore, the determination of responsibility should be lenient rather than strict. By constructing a scientific, reasonable, and flexible determination mechanism, the optimization and upgrading of corporate governance are promoted.