Board of Directors - Key Duties of Care, Loyalty and Fairness

The acts and decisions of the board of directors for all types of corporations must be performed in good faith and for the corporation's, the shareholders, benefit, and not for the officers or employees. This requires diligence on the part of all directors to understand the issues and ensure that decisions improve shareholder value. Some of these responsibilities include Duty of Care, Duty of Loyalty and Duty of Fairness.

They must act with good Duty of Care by not authorizing wrongful or illegal acts.

They must act with Duty of Loyalty to exercise their powers in the interest of the corporation and not for their own interest or that of the officers. If the director has a potential conflict of interest or opportunity they must offer the opportunity to the corporation first.

They must act with Duty of Fairness to manage all conflicts of interest to the benefit of the stockholders. For example if a director or officer owns a building, the rent must not be excessive for the company's use of the building. They must also deal properly with board member objections and insure accurate and complete minutes are maintained.

Board Members:

	Must comply with all governing Federal and state laws to develop and enforce legally compliant bylaws by which the board operates.
	Must above all put the shareholder interests first and avoid conflicts of interest. Must be informed legally, financially and operationally concerning all issues for competent voting. Must know and apply the rules regarding quorums and meeting validity. Generally a majority of directors must be present to have a quorum unless otherwise stated in the bylaws.

Directors are expected to ensure their firm's compliance with an ever-evolving set of regulations, prevent executive wrongdoing, and appease shareholder's and Wall Street's never-ending hunger for positive short term results yet at the same time position their company for long term results. Directors must do all of this in the midst of ever changing consumer, competitive and regulatory dictates that demands near term solutions with strategic consequences.

While the directors cannot be expected to stay current on the operational details of the company's successes and failures, they should stay focused on the long term trends impacting their company, including internal development and succession planning.

To keep a combined focus on short and long term objectives, key measurements/indicators should be considered for both the next quarter and at least the next five (if not ten) years. Since the language of finance is the common language among directors with different backgrounds, key metrics include revenue and profit growth, return on assets and investments, cash flows, and debt-to-equity ratios, and the cost of capital along with capital structure, dividend and share-repurchase policies. Along with these should be the metrics for the clear drivers of the company and the various markets in which it competes such as positioning, industry trends, geography and climate, brands, intellectual property, technology imperatives, talent, labor relations, and supplier, distribution, product and operational costs.

Serving as a member of the board of directors carries responsibilities that are not to be taken lightly. The board may not be directly involved in operational implementation, but the board is to provide governance and sound judgment. This requires approving what actions management may take as well as making sure that the shareholders are served and ensuring proper care, loyalty and fairness in all decisions.

Copyright 2008 Donald C. Mann. All rights reserved

Don Mann advises CEOs and business leaders across the globe. In organizations ranging from start-ups to Fortune 100 he has delivered level-raising results of improved innovation, sales, profits and cash flow in good and hard times. His results include developing and improving highly productive and lean organizations with more rapid responsiveness, reduced stress and profitable customer delight. Sitting on a number of boards, he helps CEOs grow their companies and shareholder value. For more information, contact him at: www.RiteMann.com

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