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Holger Spamann, Monetary Liability for Breach of the Duty of Care? 8 J. Legal Analysis 337 (2016).

Abstract: This article clarifies why optimal corporate governance generally excludes monetary liability for breach of directors’ and managers’ fiduciary duty of care. In principle, payments predicated on third-party investigations of directors’ and managers’ business decisions could usefully supplement payments predicated on stock prices or accounting figures in the provision of performance incentives, including risk-taking incentives. Consequently, the reason not to use liability incentives is not absolute but a cost-benefit trade-off: Litigation is expensive, while the benefits from refining incentives are limited. The analysis rationalizes many existing exceptions from non-liability but also leads to novel recommendations, particularly for entities other than public corporations.