The Role of Directors and Officers

In supervising the management of the corporation’s business the directors are responsible for establishing major policies and procedures, evaluating management’s performance, reviewing the financial status of the corporation, preparing and submitting information about the corporation and its financial condition to government regulators, and ensuring that the corporation is in compliance with the myriad federal and state laws and regulations that govern various aspects of the corporation’s activities.

Corporations are subject to extensive governmental regulation in their formation, operating, and dissolution. Directors may be held personally liable for loss to the corporation caused by their failure to ensure that the corporation is in compliance with applicable laws.

Corporate Directors and Fiduciaries Compared

Directors differ from ordinary fiduciaries because directors are involved in conducting corporate business and receive compensation from the corporation for their services. While an ordinary fiduciary may not have the slightest interest in any transaction undertaken for his or her trustee, "by the very nature of corporate life a director has a certain amount of self-interest in part attributable to his desire to keep shareholders satisfied so that they will not oust him. " Therefore, the courts have recognized that "if directors were held to the same standard as ordinary fiduciaries, the corporation could not conduct business."

Although the courts recognize that there may be a certain degree of self-interest involved in board decisions, the duty of loyalty requires that directors’ self-interest be minimal and that the interests of the corporation and its shareholders take precedence over the directors’ desire to maintain their positions. Therefore, directors must ensure that board actions are designed to benefit the corporation as a whole.