4.1.1 Research issue: understanding a waiver of rights in the light of good corporate governance

Whenever it is suspected that a director’s fear of personal liability may have adverse consequences, a waiver of rights may offer one potential legal means to mitigate the director’s undesirable risk-aversion by reducing the exposure to liability.1 At the same time, waivers may not be unlimited and disarm the deterrent function of personal liability. Good corporate governance thus demands that directors’ personal liability and liability limitation are well-balanced.2 In Chapter 2, I emphasised the important role that courts may play in maintaining this balance. In Chapter 3, I examined the concrete factors that may guide courts in deciding when to relieve a director of personal liability and when to hold a director personally liable.

The empirical finding in Chapter 3 further showed that there was no single case in which a director was not held liable for an action in ‘subjective bad faith’. Evidently, Dutch courts require directors to act in ‘good faith’. The findings stand in stark contrast to existing legal doctrine on the ‘limited scope of discharge’ [de beperkte reikwijdte van de décharge], which suggests that a director may be discharged of personal liability to the company when acting in ‘subjective bad faith’ as long as these litigious actions were ‘known actions’, which is to say that they were disclosed to the company’s shareholders.3

The focus of this research is therefore to investigate the apparent problematic issue of discharge from directors’ liability to a company for actions performed in ‘subjective bad faith’ and to explore new points of view which may improve the Dutch practice of discharge as part of good corporate governance. To sharpen the analysis, I studied court decisions involving discharge provisions and distinguished them into those in which a director’s action involved ‘subjective bad faith’ and those involving a ‘lack of good faith’. As the findings in Chapter 3 indicate, either type of bad faith action or, better said, the difference in the serious reproachable conduct does not seem to have played a role in the outcome of the specific court cases included in this study. Courts were unwilling to absolve directors of personal liability to the company under a discharge provision in both types of case. I was interested in understanding why.

Indeed, it was my suspicion that the existing doctrine on the Dutch practice of discharge may not contribute to good corporate governance as it does not require directors’ ‘good faith’ as a precondition. The empirical and comparative insights in this research may help to further develop the practice and provide new points of view to rethink the role of discharge in terms of good corporate governance.