Bernard S. Black, a University of Texas Law School professor, contributed to this timely article that summarizes the landscape of outside directors’ liability to investor lawsuits in the wake of the recent Enron and WorldCom directors’ settlements. The article nicely sets forth the current state of the law on outside directors’ liability, and includes the following money passage on whether Enron and WorldCom-type settlements really induce outside directors to do a better job of overseeing management:

Outside directors fearing financial ruin will no doubt be more careful than directors feeling immune to out-of-pocket liability will be. But by how much? We simply don?t know. And there can be too much of a good thing. With jittery directors at the helm, prudent caution can readily transform into counterproductively defensive decision making and even paralysis in the boardroom.

Hat tip to Professor Bainbridge for the link to this article.