tracking cash flow. The officers and
directors must look to the future to
anticipate risks, trends, or events that
would impact the company.
Its Duties and Responsibilities
be put in place to enable the directors
to competently perform their monitor-
ing and decision-making responsi-
bilities. The policies and procedures
should be reasonable and consistent
with good corporate governance, and
in the best interests of the company's
stakeholders. Litigation risks can be
lowered if the policies are followed.
State law
source of director liability under state
law. These fiduciary duties encompass
the duties of care, loyalty, and good faith.
The duty of care requires directors to
act reasonably. This means director's
decision-making should be reasonable,
complete information. The duty of loyalty
requires directors to put the interests
of the company ahead of their own.
Directors cannot engage in self-dealing,
conflict of interest transactions, or mis-
appropriation of business opportunities
that rightfully belong to the company.
The duty of good faith requires not only
that the directors do what is proper for
the company, but also requires that
the stockholders be treated fairly, their
investments protected, and that the com-
pany be managed in a prudent manner
for the benefit of all stockholders.
Principal Defenses.
pation provision in their charter. The
language states that a director cannot
be personally liable to the company
or its stockholders for any damages,
losses, or expenses for the breach of
any fiduciary duty unless the director
is liable for (a) breach of the duty of
loyalty; (b) acts or omissions not in
good faith or that involve intentional
misconduct or a knowing violation of
law; or (c) any transaction from which
personal benefit. The bottom line is
that if the director's conduct satisfies
the exculpation provision, he or she is
immunized from liability.
created presumption designed to
insulate officers and directors from
liability. The presumption is that
in making business decisions, the
directors acted on an informed basis,
in good faith, and in the honest belief
that the action taken was in the best
interest of the company. In a share-
holder derivative case, the plaintiff
has the burden of overcoming this
presumption. In practical terms,
however, the directors should be pre-
pared to prove they made reasonable,
informed, common sense decisions in
good faith that were in the best inter-
est of the company.
be shielded from liability for a busi-
ness decision if they relied on infor-
mation, opinions, reports or financial