Conventional wisdom is that both inside and outside directors of corporations face significant liability exposure, especially in the wake of Sarbanes-Oxley. In a provocative paper, Bernie Black, Brian Cheffins, and Mike Klausner argue that "the liability concern is overdone. Although there are good reasons for outside directors to fulfill their duties diligently, fear of liability should not be one of them. Outside directors face only a tiny risk of paying damages or legal fees out of their own pockets." I'm not convinced the theoretical risk is as miniscule as Black et al. suggest, although I think they're right that the risk in practice is very low. Their paper thus is a useful corrective.
Will it change attitudes. however? We know from behavioral economics that people are significantly risk averse. People tend to evaluate the utility of a decision by comparison to some neutral reference point. Changes framed in a way that makes things worse (losses) loom larger in the decisionmaking process than changes framed as making things better (gains) - even if the expected value of the two decisions is the same. Hence, a loss averse person (as are most people) is more perturbed by the prospect of losing $100 than pleased by that of gaining $100. A bias against risk-taking is a natural result of loss aversion, because decisionmakers give the potential disadvantages greater weight than any potential advantages.
