Tim Davis

Artificial Intelligence. Startups & more.

Risk in Corporate Law

The balance between entrepreneurial risk-taking and a director’s corporate responsibility are inversely correlated under current securities law. The success of any corporate enterprise is entrenched in the ability of its executive management to facilitate and incorporate risk as a function of its operating capability. It is antithetical to contend that shareholder value can be created without undertaking some risk as it is a fundamental component of the corporate profit-return ratio. Of course, these principles must be balanced in light of those directors who embrace risk as an extremity and who carelessly and dishonestly destroy value through overzealous adoption. While Australian corporate law has attempted to balance these conflicting notions with the enactment of risk assessment provisions such as the business judgement rule in s180(2) of the Corporations Act 2001 (Cth) — the degree to which the law fosters and encourages directors to undertake structured entrepreneurial risk still remains questionable. The function of a director is enshrined in Chapter 2D — Part 1 — Division 1 of the Corporations Act 2001 (Cth) and their primary duties are to act in the best interests of the company and for a proper purpose. The extent to which this essential requirement is rationalised with unsystematic risk adoption rests on the judicature’s ability to interpret risk and determine the degree to which a managerial judgement was reasonable in the circumstances. Of course, the inherent nature of a judicial inquiry in relation to corporate risk infers that the risk undertaken was excessive and the complainant is disputing the efficacy of it. The Courts consideration in this regard must then fall to an examination of whether a director failed to exercise a reasonable degree of care and diligence in the discharge of his duties.

About ME

Tim Davis

Co-Founder & President of Modular, teaming up with Chris Lattner alongside a world class team who is rebuilding AI infrastructure for developers everywhere. Love being a dad, running, startups, product management, leadership, being an Aussie and living in California.