| With the functional transformation of boards, continuous advancement of corporate compliance reform and the trend towards tightening the duty of directors, China will probably habitually take the path of substantiating directors’ duty of compliance and imposing increasingly heavy liability on directors in its corporate law reform. Due to theoretical misunderstandings such as reinforcing directors’ liability could help to establish effective corporate compliance, most of the compliance failures are caused by directors’ own negligence, and reinforcing directors’ liability could help to form a compliance culture, it is difficult for corporate law reforms to realize their expected targets. China should, on the basis of recognizing directors’ positive duty of compliance, adopt a standard on directors’ duty of compliance that can strike a balance between legal liability and reputational sanction. The standard requires the court to presume directors’ violation of the duty of compliance when there is a material noncompliance or long-term, widespread, continuous noncompliance and the corporation fails to adopt the officially recommended effective compliance standard. After directors’ compliance liability is appropriately limited, China should properly set rules that eliminate or limit directors’ liability and expand the scope of shareholders’ derivative right to maximize the shareholders’ activism and convenience to file suits, help or force boards to solve structural problems by reforming the structure of boards and expanding shareholders’ information rights, and use compliance or explanation approach to push the adoption of effective compliance standard. |
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