The Duty of Care: Ensuring Diligent Decision-Making in Corporate Governance

Corporate directors are bound by the duty of care to act prudently, attentively, and in the best interests of the company. This duty ensures directors make informed decisions through adequate oversight and reasonable diligence.

What Does the Duty of Care Require?

Directors must perform their roles with the care that a reasonably prudent person would exercise in similar circumstances. This includes staying informed, attending meetings, reviewing materials, and seeking expert advice when necessary.

Standards of Conduct

• Make decisions based on all available information.
• Understand and question financial reports and strategic documents.
• Maintain active participation in board deliberations and oversight responsibilities.

Gross Negligence vs. Simple Negligence

While simple mistakes may be excused under the business judgment rule, gross negligence—knowing disregard for significant risks—may lead to director liability. Directors should be aware of the difference and always exercise heightened diligence in high-risk scenarios.

Protecting Yourself as a Director

• Document all decisions and rationales in board minutes.
• Use independent experts and counsel where appropriate.
• Maintain regular review and audit procedures.

Legal Protections

The business judgment rule can shield directors from liability if their actions were taken in good faith and with reasonable care—even if outcomes are unfavorable. Directors must act responsibly to benefit from this protection.