Managerial Judgment Hazard in Corporate Governance
Directors’ decision making is one of the indispensable roles for corporations to be sustainable; therefore, issues of managerial judgment hazards should not be put off in view of risk management. Besides the moral hazard, it is very important to deal with managerial judgment hazard.
To effectively deal with managerial judgment hazard, directors should give top priority to the identification of directors’ failed decisions as a hazard. The conceptual framework and measures to deal with managerial judgment hazard should be distinguished from those of a moral hazard. The business-judgment rule in corporate law grants injunctive relief of director’s liability, whereas it is helpful in defining a minimum standard for directors’ conduct. In addition, the relevant standards of conduct will clarify the directors’ best practices, and it will encourage competent individuals to assume directorship.
Although risk financing for managerial judgment hazard is required, a sound corporate governance structure as a tool of risk control is more effective. Directors should adopt a procedure to avoid unintentionally failed decisions by directors as much as possible. Once directors realize that their decisions are managerial judgment hazards, they should deal with these to minimize their losses as soon as possible. Subsequently, stakeholders should routinely monitor managerial performance for sound corporate governance.
KeywordsCorporate Social Responsibility Business Ethic Corporate Governance Moral Hazard Insurance Market
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