Directors & Officers Liability – A Guide to Exposures, Best Practices and D&O Insurance
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Directors and Officers (D&O) of a company are responsible to represent the interests of shareholders prudently while directing the ongoing business operations within the law. Corporate governance requires directors, officers and executives to balance the often competing interests of corporate operations with the concerns of shareholders.
While Directors and Officers do not need to be perfect in their decision-making, they must fulfill three essential duties while performing their corporate duties:
• Duty of Diligence
• Duty of Loyalty
• Duty of Obedience
It does not matter how the Directors are selected, either as political appointees or as independent selections, their responsibilities remain the same. New Directors need to be informed of their duties and responsibilities for their new roles.
These three basic duties every Director and Officer has while performing their corporate duties may be described as:
Duty of Diligence
– Often referred to as “duty of care" Directors and Officers must act in good faith, consistent with the care that a reasonably prudent person in a similar position would use under similar circumstances. Before making decisions, the Directors and Officers need to obtain and consider all relevant information available to them. They must also make a reasonable effort to monitor company activities.
Duty of Loyalty
- Directors and Officers are required to refrain from engaging in personal activities that would injure or take advantage of the corporation. They should avoid even the appearance of a conflict of interest or the misuse of their position of trust, for private or personal gains.
Duty of Obedience
- Directors and Officers are required to perform their duties in accordance with applicable statutes and the terms of the corporation’s charter. The Directors or Officers may become liable if they cause a company action that is either illegal or outside of the company’s authority.
For a more detailed discussion of Directors and Officers Liability, download Directors and Officers Liability: A MEARIE Guide to Exposures, Best Practices and D&O Insurance
. This MEARIE Guide provides details on the basic duties of Directors and Officers, Directors and Officers Liability Exposures, Best Defence for Directors and Officer Protection and a discussion of the D&O Insurance provided by MEARIE.
If you would like to discuss how MEARIE can help your Board with training, insurance due diligence or insurance education, please contact firstname.lastname@example.org