COMPLIANCE
Are Board Members Fully Protected? By KENNETH A. ROSEN
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re board members fully protected against officer and director liability claims if they rely on management and the company’s professional advisors in making key decisions? Maybe not. In evaluating transactions outside the ordinary course that will materially change a company’s balance sheet or capital structure, boards must be more diligent than simply accepting the judgment of management. Subsections (e) and (f) of § 8.30 of the Model Business Corporation
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Act say: “In discharging board or board committee duties, a director who does not have knowledge is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, prepared or presented by any of the persons specified in subsection (f).” Subsection (f)(1) specifies officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the functions performed or the information, opinions, reports or statements provided.
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Subsection (f)(2) adds: “[L]egal counsel, public accountants, or other persons retained by the corporation as to matters involving skills or expertise the director reasonably believes are matters within the particular person’s professional or expert competence, or as to which the particular person merits confidence.” And then subsection (f)(3) says that a board member may rely on: “[A] board committee of which the director is not a member if the director reasonably believes the committee merits confidence.” BACK TO CONTENTS
