A Practical Guide: Fundamentals for Corporate Directors

This guide is a convenient summary of a corporate director’s most important responsibilities. Drawing on current practices, the guide also offers practical advice on how a corporate board can discharge its institutional responsibilities. Although the guide describes a director’s principal legal duties, it is intended as a primer for individuals serving as a director; it is not addressed to corporate lawyers. Therefore, it omits or treats summarily many of the subtle legal and factual considerations that would have to be taken into account by a lawyer giving advice to a board.

The guide does not attempt to provide specific legal guidance and should not be relied on for that purpose. More importantly, how well the board meets its routine responsibilities on a month-to-month, year-to-year basis will have a greater impact on the long-term success of the business than will its handling of the occasional, dramatic transaction that is likely to result in litigation. The guide does not attempt to lay down hard and fast rules for board procedures or to prescribe a model code of conduct for directors. What is required of a director to function effectively will obviously vary across firms, depending on such factors as the size of the firm, whether its shares are publicly traded, its financial condition, the nature and scope of its activities, and the personal relationships that have developed among board members and senior management. Nevertheless, there are certain core functions that every board is expected to perform and certain types of behavior that every director is expected to avoid. The key determinants of successful directors tend to hold true for all firms, large or small, publicly or privately held, formed for profit or nonprofit.

Section 1 of this guide describes the structure of the board, including the function and composition of the major board committees. Section 2 explores the role of the board in terms of its legal authority and relationships with management, shareholders, and other stakeholders. Section 3 details directors’ fiduciary obligations and offers some practical guidelines for individual directors and the board in discharging such duties. Section 4 places in perspective the liability risks that directors face. Section 5 deals with the importance of ethics in the world of corporate governance. It offers some tips for directors as they fulfill the evolving responsibilities of the important and challenging role known as corporate directorship.