The 1985 case of Smith v. Van Gorkom, the legislative responses to the decision in that case, and the subsequent court cases that interpreted the legislation, illustrate the evolution of how the duty of care is measured. Overarching all of this is a policy question: Is it ever appropriate to allow directors to be reimbursed or otherwise indemnified in situations where they have been deficient in the exercise of their responsibility to carefully address the issues confronting them?
Your task is to prepare an essay (500-750 words) that addresses the following questions:
Given that directors are often well compensated for their work, on what basis can one justify the attempt by legislatures to mandate indemnification or, in some situations, allow corporations to provide for director indemnification if there is a finding of good faith?
Do you agree with the argument that, without indemnification, experienced and sophisticated business people would avoid taking on board of directors positions? Why or why not?