Director Duties, Liabilities Refined as Financial Fallout Continues


In the wake of scandal and collapse that has typified the recession thus far, many have questioned whether corporate directors are doing their jobs. Some have even suggested that many aren't independent enough. But what exactly is a director's job? How is it changing?


Generally, corporate directors are responsible for carrying out three duties, according to CIO-Today.com: a duty of care, a duty of loyalty and a duty of good faith. All three are pretty self-explanatory. The duty of care requires directors to make decisions carefully, with full information and after careful deliberation. The duty of loyalty forbids conflicts of interest and other conduct that is "disloyal" to the company, such as misappropriating company assets. Similarly, the duty of good faith prohibits activity "motivated by an intent to... harm the corporation or violate the law."


In defining these duties, the Delaware Supreme Court has also decided that a director violates all three when she fails to "oversee" company activities.And that's significant because, if a director violates her duties of good faith or loyalty, she can be individually liable for money damages. As CIO-Today.com writers Elizabeth Burnett and Elizabeth Gomperz point out, lawsuits against corporate directors are bound to increase as the recession continues, which means director duties and liabilities will continue to be refined.