The Duty to Follow the Law: A Core Responsibility for Corporate Directors
One of the fundamental fiduciary obligations of corporate directors is the duty to follow the law—also referred to as the duty of obedience. This duty requires directors to ensure that all corporate actions are lawful and consistent with the company’s governing documents.
What It Means
Directors must ensure that the corporation operates within the bounds of all applicable laws, including federal, state, and local statutes, as well as the company’s bylaws and articles of incorporation. Engaging in illegal or unauthorized activities may expose directors to personal liability.
Key Responsibilities
- Avoid ultra vires acts—actions beyond the company’s legal authority
- Ensure corporate compliance programs are in place and effective
- Take corrective action when aware of illegal conduct within the company
- Stay informed about changes in laws and regulations that impact the business
Director Liability
Directors may be held personally liable for statutory violations or illegal conduct if they participated in or had actual knowledge of the acts and failed to act. Even well-meaning directors must take steps to fulfill this duty with diligence and vigilance.
Compliance Best Practices
- Conduct regular legal audits and risk assessments
- Retain qualified legal counsel to advise on regulatory matters
- Document all compliance-related decisions and board discussions
- Maintain internal policies for reporting and addressing misconduct
Observing the duty to follow the law is not only a legal requirement—it’s essential to preserving corporate integrity and stakeholder trust.
