Beyond "Unlimiting" Shareholder Liability: Vicarious Tort Liability for Corporate Officers

By Glynn, Timothy P. | Vanderbilt Law Review, March 2004 | Go to article overview

Beyond "Unlimiting" Shareholder Liability: Vicarious Tort Liability for Corporate Officers


Glynn, Timothy P., Vanderbilt Law Review


Although limited liability is the primary benefit of the corporate form, it continues to generate controversy. In this Article, Professor Glynn argues that extending vicarious tort liability to corporate officers is the best way to retain the benefits of limited shareholder liability while reducing its social costs.

Some commentators defend limited shareholder liability; others contend it inflicts excessive costs, including encouraging unduly risky corporate activities. These costs are most pronounced in the tort context because tort victims rarely are able to protect themselves through monitoring corporate activities or bargaining with corporate actors. Proposed reforms almost always focus on extending liability for corporate activities to some or all shareholders. To date, however, the discussion has largely overlooked a more promising solution: holding top corporate officers responsible for the torts of their enterprises.

Professor Glynn argues that extending vicarious liability to high-ranking corporate officers, rather than to shareholders, is the most efficient and realistic way to ensure that firms internalize tort risks. Given their unique role, these officers are the firm's most efficient risk bearers: they are best situated to monitor and avoid risks, and to implement efficient levels of risk spreading among customers, shareholders, and insurers. And officer liability, unlike shareholder liability, cannot be evaded through judgment proofing techniques. Ultimately, Professor Glynn's proposal synthesizes modern tort theory and corporate law theory, and offers a viable resolution to the lingering tension between limited liability and the aims of our tort regime.

I. INTRODUCTION

Debate continues to rage over limited shareholder liability and the social costs it imposes.1 While proposals flourish for imposing liability on shareholders to reduce these costs, little attention has been devoted to a more promising solution: vicarious tort liability for high-ranking corporate officers. Limited shareholder liability produces benefits, but it also inflicts costs, including encouraging excessively risky corporate activity. These costs are most pronounced in the tort context because potential tort victims rarely can protect themselves by monitoring corporate activities or bargaining with corporate actors. Commentators disagree on limited shareholder liability's net impact on social utility and what, if anything, should be done to change limited liability. Some defend the current regime as efficient or at least preferable to alternatives, even in the tort context.2 Others propose curtailing limited liability, arguing that vicarious liability for corporate torts ought to extend to some or all shareholders in closely held corporations,3 or that courts ought to "pierce the corporate veil" more often.4 Still others have gone much further, arguing that liability for corporate torts should extend to all shareholders.5 Few, however, have seriously considered extending vicarious liability to the firm's other primary stakeholders, corporate management.6 Most who have addressed the idea have dismissed it with little analysis.7 In this post-Enron environment of concerns over corporate accountability and participant behavior, it is time to take seriously the option of holding top corporate officers responsible for the torts of their enterprises.

In a recent Columbia Law Review article, Professor Nina Mendelson offers the most thorough analysis to date of limited shareholder liability's moral hazard, i.e., its encouragement of excessively risky activities.8 Building on existing scholarship, she contends that the efficiency-based arguments in favor of limited shareholder liability fail to take into account qualitative differences among shareholders, that these arguments at most support limited liability only for small or passive investors, and that the limited liability of controlling shareholders for corporate torts harms social utility. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Beyond "Unlimiting" Shareholder Liability: Vicarious Tort Liability for Corporate Officers
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.