Book Title: Research Handbook on Corporate Liability

Publisher: Edward Elgar Publishing

Abstract: This chapter models the company in systems-managerial terms. The company is a system that features multiple components coordinated according to company purposes, and that interacts with its environment and responds to changes in its environment signalled by its feedback mechanisms. The company is a managerial system because it embodies a decision-making hierarchy through which action is coordinated. Modelling the company in such terms allows us to see that: the breach of Caremark-type duties, which entail the liability of directors and senior officers to the company, is a type of feedback signalling to the company and its management that internal reform is required; and vicarious liability is most coherent when imposed for torts of employees rather than independent contractors because the managerial hierarchy can be used to control the former but (in virtually all cases) not the latter.