3.5.1.1 Directors’ ‘subjective bad faith’

One striking empirical finding of this research is the large number of ‘subjective bad faith’ cases (59 of the 158 coded cases). These ‘subjective bad faith’ cases involve the court’s perception of directors’ actions with the intent to do harm to the company or company’s stakeholders. I attempted to determine which of the legal case factors could be of predictive value to a court’s assumption of director’s ‘subjective bad faith’. The research results presented in Table 5 (Logistic regression model: Subjective bad faith) indicate that a director’s ‘foreseeability of damage’ is a prime indicator for the assumption of a director’s ‘subjective bad faith’. Based on the regression model, there is a 72% chance that when ‘foreseeability of damage’ is at issue in a court case without mention of other case factors, the court tends to assume that there was ‘subjective bad faith’ on the part of the director (see paragraph 3.4.2). I have noted that these results must be viewed with caution. The effect size of the model was not very high. Further, I based the regression analysis on legal case factors. It goes without saying that a more thorough understanding of ‘subjective bad faith’ would require insight into ‘simple’ facts, which are likely to provide more information.1

Apart from the results obtained from the regression analysis, it is important to note that, when a court is convinced of a director’s ‘subjective bad faith’, other circumstances seem to become irrelevant, or at least seem not to influence a court’s decision. This finding may therefore be helpful for future legal decision-makers, justifying the stipulation of an explicit ‘zero tolerance policy’ with regard to behaviours involving ‘subjective bad faith’. Moreover, this finding suggests that future legal decision-making may benefit from a judicial distinction between ‘subjective bad faith’ cases and cases ‘not involving subjective bad faith’. It is only in the latter cases that variation in circumstances (other than ‘subjective bad faith’) may cause changes in case outcome.

In accordance with the foregoing, the dominant role played by ‘subjective bad faith’ led me to extend and refine the quantitative research by focusing on the analysis of the sample of cases not involving ‘subjective bad faith’ (N=99). The results obtained are discussed below.