2. Directors and officers.

Question

a. Describe three (3) ROLES of directors.
b. Define the DUTIES of directors and officers.
c. Provide a summary of a court ruling that applied one of the DUTIES of director(s), and/or officer(s). Provide the citation for the case.

Answer 1

a. Three Roles of Directors

1. Strategic Oversight: Directors are responsible for providing guidance on the company's strategic direction. They help set long-term goals and establish the policies and objectives necessary to achieve those goals, ensuring that the organization is moving in a direction that aligns with its mission and vision.

2. Risk Management: Directors play a crucial role in identifying and managing risks that could impact the company. This involves assessing potential threats and opportunities, overseeing risk management policies, and ensuring that proper controls are in place to minimize risks.

3. Fiduciary Duty: Directors have a fiduciary duty to act in the best interests of the company and its shareholders. This involves making decisions that benefit the organization as a whole and avoiding conflicts of interest. Directors must prioritize the welfare of the company when making decisions and ensure that their actions are aligned with that commitment.

b. Duties of Directors and Officers

Directors and officers owe several critical duties to the corporation, including:

1. Duty of Care: This duty requires directors and officers to make decisions with the same level of care that a reasonably prudent person would exercise in a similar position. It involves being informed, considering relevant information, and participating in the decision-making process actively.

2. Duty of Loyalty: This duty mandates that directors and officers act in good faith and in the best interest of the corporation, avoiding conflicts of interest and self-dealing. They must disclose any potential conflicts and refrain from using their position for personal gain.

3. Duty of Obedience: Directors and officers are required to ensure that the corporation adheres to its bylaws, applicable laws, and regulations. They must act within the scope of their authority and ensure that the organization operates within its legal and ethical boundaries.

c. Summary of a Court Ruling

Case Citation: In re Citigroup Inc. Shareholder Derivative Litigation, 964 A.2d 106 (Del. Ch. 2009).

Summary: In this case, the Delaware Court of Chancery addressed the duty of care owed by directors to shareholders in the context of business judgment. Citigroup faced significant losses due to the subprime mortgage crisis, leading shareholders to sue the board for alleged mismanagement. The court examined whether the directors had acted in good faith and informed their decisions regarding risk management.

The ruling underscored that directors meeting the duty of care are not held liable for mere failure to achieve business success; instead, they must demonstrate that they were informed and acted with diligence while making decisions. Ultimately, the court dismissed the claims against the directors, emphasizing that business judgment should not be interfered with unless a clear breach of duty can be demonstrated.

This case is significant because it highlights the boundaries of the duty of care and serves as an important precedent regarding directors' liability in exercising their judgment for the business.