Director Duties
The fiduciary obligations of board members, including duty of care and duty of loyalty.
What is Director Duties?
Director duties are the legal obligations that members of a company's board of directors owe to the company and its shareholders. The two primary duties are: (1) the duty of care, which requires directors to make informed, thoughtful decisions after appropriate deliberation and reliance on expert advice; and (2) the duty of loyalty, which requires directors to prioritize the company's interests over their own personal interests, avoiding conflicts of interest and self-dealing. Under the business judgment rule, directors are generally protected from liability for good-faith business decisions made on an informed basis. Breach of duty of loyalty — especially self-dealing — receives more exacting judicial scrutiny.
Example
In the landmark Delaware case Smith v. Van Gorkom (1985), the Delaware Supreme Court held that Trans Union's board violated its duty of care by approving a merger without adequate information or deliberation. The directors — all experienced businesspeople — were held personally liable, prompting widespread adoption of exculpation provisions in corporate charters.
Source: Delaware Courts — Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985)