The Elimination Of Director Liability And Stockholder Retur

US corporations are facing a shortage of qualified directors. Prospective corporate directors fear being held personally liable for decisions that may result in financial losses to shareholders. At the same time, the cost of director liability insurance has increased, and many firms are unable to continue providing it for directors. Delaware recently amended the Delaware General Corporation Law (DGCL) to allow stockholders of Delaware corporations to eliminate or limit the personal liability of directors for breach of fiduciary duty. The effect of this elimination of liability on Delaware stockholders was examined by comparing the performance of common stock of Delaware and non-Delaware firms during the Delaware legislature's debate and approval of the legislation. The results show that Delaware firms performed worse than non-Delaware firms during this period, but the differences were not statistically significant.