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The Duty of Care Owed by a Corporate Board of Directors

Considering the vast sum of money involved with many corporate transactions, it's imperative that all corporate officers and the board of directors abide by the proper standard of care. All of these individuals have a duty to interact with others in a reasonably prudent manner. Everyone who assumes one of these positions has a duty to act as knowledgeably as all the others – even though some may have different professional expertise and experience.

Responsible Corporate Behavior, Standards, and Penalties

  • Possible penalties for wrongful behavior. In some instances, when corporate officers or members of the board of directors violate the reasonably prudent person standard, the offending person may be held personally responsible for paying money damages to the corporation. When a less wrongful act is committed by one of these high-ranking corporate executives, it may still be possible to get a court to issue an injunction to stop a particular transaction before it’s completed;

  • Gross negligence. When a high-ranking corporate officer or board member knowingly neglects important duties he/she knows are critical to the corporation's ongoing viability, it's possible a court will rule that this person acted with gross negligence or recklessly. This can result in the offending party being personally liable to the corporation for all money damages suffered due to such wrongful behavior;

  • Expert advice. Fortunately, high-ranking corporate officers do have the right to rely on advice provided by experts or approved groups or committees. Therefore, if the corporation’s accounting firm falsifies documents and statistics filed on the corporation’s behalf – without their knowledge – these corporate officers will most likely not be held liable for later harm suffered by the corporation;

  • Passive negligence and duties of care. While corporate executives are usually not held liable for internal wrongdoing that was never made known to them, courts might hold them liable for having failed to institute better audits or internal control mechanisms that could have revealed the harmful activities at an earlier date;

  • Damages caused that were not the proximate result of any corporate executive’s acts or omissions. If the damages suffered by a corporation would probably still have occurred apart from the proximate actions of a specific executive, then that party will probably not be held personally liable;

  • Joint and several responsibility. If nearly every member of the board of directors votes to take action that proves harmful to the corporation, a court may choose to hold them all jointly and severally liable if their votes were the proximate cause of the damage suffered by the corporation. Therefore, if one “lone” member of the board of directors is convinced that the others are voting in a truly harmful manner, he/she might want the record to clearly document his/her concerns and even consider resigning. Otherwise, that individual might be held jointly and severally liable with all the others – even though s/he voted differently than those who wound up damaging the corporation.

     

To obtain help with handling all of your Georgia business planning needs, please contact the Law Offices of Shane Smith today.  You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (770) 487-8999.


Shane Smith
Advocate for the Seriously Injured in Georgia