In both a private or public corporation, a director or officer has a fiduciary duty to the company and its shareholders to be loyal to the business, to act in good faith and with honesty and care in carrying out their responsibilities, and to act in the corporation’s best interest. When a director or officer’s actions appear to breach their fiduciary duties, they open themselves up to potential legal liability such as through a lawsuit.
Robust corporate governance
Part of acting in a company’s best interest is to conform to principles of sound corporate governance. The director or officer must have the background and knowledge to allow them to make reasonable business decisions and the understanding of when they should consult other professionals or seek training in subjects in which they need to grow. They must act in compliance with federal and state laws governing tax, securities, corporations, privacy and other matters that govern the business.
Seek legal guidance
One important way that directors and officers can be confident that they are fulfilling their fiduciary duties is to retain legal counsel for ongoing guidance and advice about corporate governance and the legal responsibilities of their roles. Developing a working relationship with a lawyer as early as possible will help the fiduciary get off on the right foot in their role, but they can establish an affiliation with an attorney whenever necessary, including when the threat of a lawsuit arises.
In part 2 of this post, we will describe a lawsuit that provides an example of the types of issues that can arise when a director or officer’s professional actions come under scrutiny.