572 
1156The new Company Law enhances the powers of directors while also increasing their duties and responsibilities, particularly their liability for breaches of duty of diligence. When evaluating directors, a distinction should be made between substantive-based and procedural-based approaches. First, examine whether a director has violated his duty of loyalty. Beyond core scenarios such as seeking improper personal gain or having conflicts of interest, the focus should be on whether they intentionally, either directly or by causing the company or board to act or omit to act, violated laws and regulations, or whether they intentionally harmed the company’s interests, resulting in material harm. If a heavier breach of duty of loyalty is established, there is no need to further assess whether the director has breached duty of diligence. Second, consider whether the director has fulfilled his duty of diligence by examining the procedures stipulated by law or the company, as well as the director’s role, position, and professional background. Reinforced obligations for directors, the duty of ensuring compliance, as well as the new phenomena like directors’ “approval without guarantee”, can be understood within this dual framework.
In China, a significant challenge for directors in exercising their powers lies in their inability to effectively counter controlling shareholders. This issue cannot be resolved merely by strengthening directors’ duties or liabilities in the text of the law. The institutional innovation of designating independent directors as “board gatekeepers” primarily adds to their diligence obligations. However, this does not empower independent directors to become strong actors in corporate governance; instead, it exposes them to excessive liabilities.
In addressing director liabilities, courts should methodologically avoid conflating duty of loyalty with duty of diligence and, in terms of outcomes, prevent the trend of imposing excessively heavy liabilities for breaches of duty of diligence. For the most prominent liability issue—misrepresentation, full liabilities should be imposed for breaches of duty of loyalty, while liabilities for breaches of duty of diligence should be reasonably pursued based on specific procedures. Simultaneously, other reasonable limitations based on factors such as liability entities, liability caps, and liability proportion should be explored. Liability to third parties should be limited to cases where a director breaches duty of loyalty and simultaneously harms both the company and third-party interests.
