Publications: Ask the Legal Expert - May 2008

Some of our trustees are spooked by recent stories and warnings about board members being held liable for things that go wrong at nursing facilities. How do we help them get over their concems?

What are the liabilities of a corporate director or officer? A corporate director or officer must (1) act in good faith, (2) with the care an ordinary prudent person in a like position would exercise under similar circumstances, and (3) in a manner the director or officer reasonably believes to be in the best interest of the corporation.

The duty of good faith requires that a director or officer perform his duties honestly, consciously and fairly. A director or officer must manage the corporation in the best interest of its shareholders. As trustees of the corporation, directors and officers are prohibited from using their positions for personal gain at the expense of the corporation. In addition, directors and officers may not seize a corporate opportunity that would otherwise go to the corporation's benefit.

Similarly. the duty of due care requires the director or officer to inform themselves as to the condition of the corporation and the conduct of its affairs. However. directors and officers are not insurers of the acts of the corporation. A director or officer may rely upon information prepared and presented by officers, employees, and other professionals, so long as he or she reasonably believes them to be reliable and competent.
When these standards are met, the director is entitled to the business judgment rule. It provides that directors and officers are immune from liability to the corporation for losses incurred in corporate transactions within their authority, so long as the transactions are made in good faith and with reasonable skill and prudence.

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