“Business leaders are usually pleased if they are asked to serve on a business’s board of directors,” says Timothy J. Miller, a partner at Novack and Macey. But “business leaders should recognize that serving on a corporation’s board carries with it very real responsibilities and risks.” Mr. Miller is the featured contributor in the Legal Affairs Insights column of this month’s Smart Business Chicago magazine (PDF) and online edition (Link).
”If a board member fails to take the responsibilities of board membership seriously, and instead treats board memberships as an ‘honor’ without responsibilities, or as a chance to periodically play a round of golf with colleagues, it can lead to serious repercussions,” Mr. Miller explained. For example, a director “could be sued for millions of dollars in damages.” But that doesn’t mean directorships should be avoided, Mr. Miller said. Instead, “those offered directorships should think carefully about what being a director means.”
“A director’s duties differ depending on the state where a business is incorporated, but usually directors are said to owe duties of care and loyalty,” Mr. Miller said. “[T]he duty of care requires directors to carefully act on behalf of the corporation. As the standard is usually formulated, the duty of care requires that the directors exercise the same degree of care that a prudent person would exercise in the management of his or her own business.”
“The duty of loyalty requires that directors act in the best interests of the corporation — not their own best interests. Thus, for example, if a director learns of a business opportunity, he or she may need to refer it to the corporation and not exploit it for the director’s own benefit.”
For more information about directorships, contact Mr. Miller at 312.419.6900 or email@example.com.