Although some directors and officers make decisions that are simply egregious, others find themselves under the gun through no fault of their own for activities that were out of their control or for pursuits they never knew were illegal. These Individuals often fail to realize that the key responsibility of a company’s corporate counsel is to protect the company, not them as individuals. It is up to corporate officers to protect themselves in the event they become subject of a complaint or inquiry.

Outside, independent legal counsel is needed to ensure that their rights are protected, they take all necessary steps to make the best possible decisions, and that they are provided with a proper defense when faced with scrutiny.

Key Duties of Directors

The board of directors manages a company’s business and affairs. Directors are governed by such principles as the duty of care, duty of loyalty and the “business judgment rule.” As long as these principles are adhered to, and as long as directors are careful and loyal to corporate and shareholder interests, they have wide discretion to exercise their business judgment as they see fit.

The Duty of Care requires directors to be informed, prior to making a business decision, of all material information reasonably available to them in the exercise of their management of the affairs of a corporation.

The duty of loyalty protects the corporation and its shareholders and requires directors to act in good faith and in the best interests of the corporation and its shareholders. The prevalent legal standard is that the duty of loyalty requires that the director be disinterested, such that he “neither appears on both sides of a transaction nor expects to derive any personal financial benefit from it” and his decision must be “based on the corporate merits of the subject before the board rather than extraneous considerations or influences.”