Breaches of Director Duties

In 2010, women accounted for 15.7 percent of corporate board members.

In 2010, women accounted for 15.7 percent of corporate board members.

Board of directors members are trusted to protect the assets of a business. Women are often asked to serve on boards and take on director responsibilities. In these positions, you must perform with a high level of care, called a fiduciary duty. Fiduciary responsibilities are generally divided into the duty of care and the duty of loyalty. As a director, if you breach these duties, you can face civil and criminal liability.

Using Reasonable Care

When acting in the capacity of a director, you must be diligent in the performance of your responsibilities. Davis-Sterling.com is an attorney operated website that provides legal explanations regarding corporate liability. According to the site, a fiduciary duty requires that you perform with a reasonable level of care. When making decisions for the company, you should fully understand the goals of the business and diligently work to meet those goals with minimal risk. Exercising reasonable care includes your regular attendance at board meetings and communications with company management. Refusing to perform these tasks could find you in breach of your director duties. There's no reasonable level of care when decisions are made without adequate preparation.

The Company's Interests

Your fiduciary duty requires that you protect the interests of the company over your own. A director must avoid conflicts of interest with the company. Your loyalty is to the business and you cannot place yourself in a position where your personal goals contradict those of the company. This can occur when a director bids against the company on an opportunity or starts a business that is in direct competition. When conflicts do arise, you have a duty to fully disclose the issue to the shareholders and management. Hiding a known conflict is a breach of your fiduciary duty.

In Good Faith

Directors have a duty to act in good faith when working on behalf of the company. According to Davis-Sterling, directors are expected to act ethically and not expose the company to any financial or criminal liability. The director is trusted to promote the success of the company and any behavior that is counter to that responsibility is considered a breach. Using your position to embezzle money or participate in other criminal activities is counter to your duty to act in good faith.

Enforcement and Liability

When breaches do occur, companies have the option of bringing civil or criminal actions against board members. Douglas Y. Park is an attorney specializing in corporate governance. On his website, DYP Advisors, he explains that courts often follow a business judgment guideline to determine if the action taken was reasonable and in the interest of the business. Using several guidelines, the judge will decide whether the director's actions were negligently or willfully counter to the company's best interests. If it's determined that they were, the director can be found civilly liable to the business for any revenue lost. In situations where theft or other illegal activities are involved, directors may be subjected to criminal prosecution.

 

About the Author

Erika Winston is a Washington, D.C.-based writer, with more than 15 years of writing experience. Her articles have appeared in such magazines as Imara, Corporate Colors E-zine and Enterprise Virginia. She holds a Juris Doctor degree from Regent University and a Masters in public policy from New England College.

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