The New Indiana Business Corporation Law: “Reckless” Statute or New Standard?

Thursday, January 1st, 1987 at 12:00 am by Paul F. Banta
Paul F. Banta, The New Indiana Business Corporation Law: “Reckless” Statute or New Standard?, 1987 Colum. Bus. L. Rev. 233

The wisdom of the new Indiana law is not obvious. By making it easier to put outside directors on the board, the law protects shareholders. In doing so, however, it reduces another longstanding shareholder protection, the deterrence caused by a negligence based liability rule. The provision will make derivative suits less effective as a means of checking management, but this sacrifice is made in order to facilitate the election of outside directors to the board. For this novel provision to be beneficial to shareholders, the check on management provided by outside directors must be substantially greater than the deterrent effect of a stricter liability rule.

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