DOCSLIB.ORG

The Fiduciary Duties of Directors of Troubled U.S. Companies

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
The Fiduciary Duties of Directors of Troubled U.S. Companies Chapter 2 The Fiduciary Duties of Directors of Troubled Marshall Huebner U.S. Companies: Emerging Clarity Davis Polk & Wardwell Hugh McCullough When a company finds itself hard-pressed to pay its debts, its officers would be recused) loses the benefit of this presumption, and the and directors often must make difficult decisions, frequently under director's conduct is measured by a much stricter standard: “entire” challenging constraints. Many of those choices require a balancing of or “intrinsic” fairness to the corporation. The burden of proof in interests among shareholders, creditors and other constituencies. these cases rests upon the defendant director to show that his or her Officers and directors must make those choices while being guided, at conduct satisfies the “entire” fairness test. all times, by their duties to the corporation and its stakeholders. In two recent decisions that should provide both greater clarity and comfort A. Duties Run Primarily to the Corporation to corporate decision-makers, the Delaware Supreme Court addressed many issues relating to the duties of officers and directors. This article Under Delaware law, the duties of directors of a solvent corporation examines the legal responsibilities and potential liabilities of directors run to the corporation, which is to be managed for the benefit of its of insolvent and nearly-insolvent corporations in light of those recent shareholders. No fiduciary duties are owed to creditors of a solvent decisions. It also discusses the underlying ethos of the decisions, and corporation, as confirmed by a recent decision of the Delaware briefly contrasts it to those of other legal systems. Supreme Court. In North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, the court summarised I. Principles of Director Responsibility the duties of directors of solvent corporations thusly: It is well established that the directors owe their fiduciary obligations In the United States, corporations are creatures of state law, and the to the corporation and its shareholders. While shareholders rely on fiduciary duties of a corporation's directors are defined by its state directors acting as fiduciaries to protect their interests, creditors are of incorporation. Because many large U.S. corporations are afforded protection through contractual agreements, fraud and incorporated in the state of Delaware, which has a strong tradition fraudulent conveyance law, implied covenants of good faith and fair of well-developed corporate jurisprudence, this article will address dealing, bankruptcy law, general commercial law and other sources of Delaware law. There may, however, be differences between creditor rights. Delaware courts have traditionally been reluctant to Delaware law and the laws of other states within the United States. expand existing fiduciary duties. Accordingly, “the general rule is U.S. directors have the primary duties of “care” and “loyalty.” The that directors do not owe creditors duties beyond the relevant duty of care requires that directors exercise the degree of care that contractual terms.” “ordinarily careful and prudent men would use in similar 930 A.2d 92, 99 (Del. 2007). As to the company's owners, directors' circumstances.” The duty of loyalty obligates directors to act in duties are analogous to those of a trustee who is obliged to manage good faith in the best interests of the corporation and its a trust in good faith and with the requisite degree of care and loyalty. shareholders, and to refrain from engaging in activities that permit As long as there is no evidence of a breach of those duties, the them to receive an improper personal benefit from their relationship decisions of disinterested directors - even if they turn out to have with the corporation. The duty of loyalty prohibits self-dealing and been misguided or mistaken - will generally be insulated from usurpation of corporate opportunities by directors. liability by the business judgment rule. In the discharge of their fiduciary duties, directors generally have the If, on the other hand, there is found to be a breach of those duties, benefit of the so-called “business judgment rule.” The business then shareholders have the right to bring claims against the directors judgment rule is a presumption that in making a business decision, the on behalf of the corporation (but not necessarily on their own directors of a corporation acted on an informed basis, in good faith and behalf). As the court in Gheewalla stated: in the honest belief that the action taken was in the best interests of the It is well settled that directors owe fiduciary duties to the corporation. company. Absent an abuse of discretion, that business judgment will When a corporation is solvent, then those duties may be enforced by be respected, and not second guessed by the courts. The burden is on its shareholders, who have standing to bring derivative actions on the party challenging the decision to establish facts rebutting the behalf of the corporation because they are the ultimate beneficiaries presumption. The justification usually articulated for the business of the corporation's growth and increased value. 930 A.2d at 101. judgment rule is that without it, people would not be willing to serve as directors or take appropriate risks for the benefit of the corporation. There are, however, circumstances in which directors are not B. Duties of Directors When a Corporation is Insolvent entitled to the presumption afforded by the business judgment rule. or Nearly Insolvent Among other things, when a director has a personal interest in a matter, implicating the duty of loyalty, the director (who ideally Until recently, many (including some judges) believed that the duties 6 WWW.ICLG.CO.UK ICLG TO: CORPORATE RECOVERY AND INSOLVENCY 2008 © Published and reproduced with kind permission by Global Legal Group Ltd, London Davis Polk & Wardwell Fiduciary Duties of Directors of directors shifted as a corporation neared insolvency. Boards were II. Applying the Foregoing Principles of routinely advised that entering the so-called “zone of insolvency” was Director Responsibility a triggering event for changing duties, and that it might even strip directors of the protection of the business judgment rule. In Gheewalla and in Trenwick America Litigation Trust v. Ernst & Young, A. No Direct Liability to Creditors the Delaware Supreme Court authoritatively laid down the law on these topics, providing much-needed guidance to U.S. directors. It has long been settled that under ordinary (i.e., solvent) (Although the opinion in Trenwick was penned by the Delaware Court circumstances, stakeholders typically have only a derivative (and of Chancery, the opinion and its reasoning were expressly affirmed by not direct) right to sue for breach of the fiduciary duties of directors. the Delaware Supreme Court. Statements from Trenwick quoted here If they do bring suit against directors, they must do so on behalf of are from the Court of Chancery's decision.) the corporation, and any proceeds of those suits are for the benefit In Gheewalla, the Delaware Supreme Court opined that the duties of of the corporation. directors, and the beneficiaries of such duties, do not change as The court in Gheewalla opined that upon insolvency, creditors (who insolvency becomes progressively more likely; stated differently, that have, after all, taken the place of shareholders as the de facto the “zone of insolvency” has no legal import: owners) may likewise bring only derivative - and not direct - suits [T]he need for providing directors with definitive guidance compels on behalf of the corporation against directors: us to hold that no direct claim for breach of fiduciary duties may be The corporation's insolvency “makes the creditors the principal asserted by the creditors of a solvent corporation that is operating constituency injured by any fiduciary breaches that diminish the firm's in the zone of insolvency. When a solvent corporation is navigating value.” Therefore, equitable considerations give creditors standing to in the zone of insolvency, the focus for Delaware directors does not pursue derivative claims against the directors of an insolvent change: directors must continue to discharge their fiduciary duties corporation. Individual creditors of an insolvent corporation have the to the corporation and its shareholders by exercising their business same incentive to pursue valid derivative claims on its behalf that judgment in the best interests of the corporation for the benefit of its shareholders have when the corporation is solvent. shareholder owners. 930 A.2d at 101-102. Until Gheewalla, it remained an open Id. at 101. The court in Gheewalla firmly rejected those decisions question whether creditors also had a direct right to sue directors that implied that there might be some ill-defined moment as a after a corporation became insolvent. Some prior Delaware corporation neared (but had not yet reached) insolvency when the decisions had at least admitted the possibility that creditors might scales tipped and the fiduciary duties of directors shifted from have this right, which Gheewalla expressly rejected: “our holding shareholders to creditors. The court reasoned that uncertainty might today precludes a direct claim arising out of a purported breach of constrain directors from making necessary decisions for fear that a fiduciary duty owed to that creditor by the directors of an their judgment might be second-guessed as having been motivated
Load more

Recommended publications
  • How Many Fiduciary Duties Are There in Corporate Law?
    DO NOT DELETE 10/24/2010 5:49 PM HOW MANY FIDUCIARY DUTIES ARE THERE IN CORPORATE LAW? JULIAN VELASCO* ABSTRACT Historically, there existed two main fiduciary duties in corporate law, care and loyalty, and only violations of the duty of loyalty were likely to lead to liability. In the 1980s and 1990s, the Delaware Supreme Court breathed life into the duty of care, created a number of intermediate standards of review, elevated the duty of good faith to equal standing with care and loyalty, and announced a unified test for review of breaches of fiduciary duty. The law, which once seemed so straightforward, suddenly became elaborate and complex. In 2006, in the case of Stone v. Ritter, the Delaware Supreme Court rejected the triadic formulation and declared that good faith was a component of the duty of loyalty. In this and other respects, Delaware seems to be returning to a bifurcated understanding of the law of fiduciary duties. I believe that this is a mistake. This area of law is inherently complex and much too important to be oversimplified. The current academic debate on the issue focuses on whether there should be two duties or three. In this Article, I argue that the question is misleading and irrelevant, but that if it must be asked, the best answer is that there are five duties—one for each paradigm of enforcement. In defending this claim, I explain the true nature of fiduciary duties and provide a robust framework for the discussion, implementation, and development of the law. * Associate Professor of Law, Notre Dame Law School; B.S.
    [Show full text]
  • 2013-2014 Sheathing Restitution's Dagger 899 Under the Securities
    2013-2014 SHEATHING RESTITUTION’S DAGGER 899 UNDER THE SECURITIES ACT SHEATHING RESTITUTION’S DAGGER UNDER THE SECURITIES ACTS: WHY FEDERAL COURTS ARE POWERLESS TO ORDER DISGORGEMENT IN SEC ENFORCEMENT PROCEEDINGS FRANCESCO A. DELUCA* “Beneath the cloak of restitution lies the dagger to compel the conscious wrongdoer to disgorge his gains.”1 Table of Contents I. First Principles: A Primer on the SEC’s Disgorgement Remedy, Classic Disgorgement, and the Equity Jurisdiction of the Federal Courts ..................................... 903 A. “Disgorgement” in the Securities Context .................. 903 B. Classic Disgorgement .................................................. 904 C. The Equity Jurisdiction of the Federal Courts ............ 907 II. Disgorgement’s History Under the Securities Acts ........... 908 III. An Analysis of Cavanagh ................................................... 911 A. Analysis of Allegedly Analogous Equitable Remedies ..................................................................... 912 B. Analysis of Binding Precedents .................................. 920 C. Analysis of Persuasive Precedents .............................. 926 IV. The SEC’s Disgorgement Remedy Is Not an Equitable Remedy ............................................................................... 930 V. Implications ....................................................................... 931 VI. Conclusion ......................................................................... 933 * Boston University School of Law (J.D. 2014); Roger
    [Show full text]
  • Fiduciary Law's “Holy Grail”
    FIDUCIARY LAW’S “HOLY GRAIL”: RECONCILING THEORY AND PRACTICE IN FIDUCIARY JURISPRUDENCE LEONARD I. ROTMAN∗ INTRODUCTION ............................................................................................... 922 I. FIDUCIARY LAW’S “HOLY GRAIL” ...................................................... 925 A. Contextualizing Fiduciary Law ................................................... 934 B. Defining Fiduciary Law .............................................................. 936 II. CERTAINTY AND FIDUCIARY OBLIGATION .......................................... 945 III. ESTABLISHING FIDUCIARY FUNCTIONALITY ....................................... 950 A. “Spirit and Intent”: Equity, Fiduciary Law, and Lifnim Mishurat Hadin ............................................................................ 952 B. The Function of Fiduciary Law: Sipping from the Fiduciary “Holy Grail” .............................................................. 954 C. Meinhard v. Salmon .................................................................... 961 D. Hodgkinson v. Simms ................................................................. 965 CONCLUSION ................................................................................................... 969 Fiduciary law has experienced tremendous growth over the past few decades. However, its indiscriminate and generally unexplained use, particularly to justify results-oriented decision making, has created a confused and problematic jurisprudence. Fiduciary law was never intended to apply to the garden
    [Show full text]
  • Understanding Maryland's Business Judgment Rule
    File: sharfmanfinalmacro.doc Created on: 4/18/2006 5:07 PM Last Printed: 5/20/2006 5:17 PM Understanding Maryland’s Business Judgment Rule Bernard S. Sharfman1 I. INTRODUCTION The “Business Judgment Rule” (“BJR”) is a common law stan- dard of judicial review.2 The BJR is applied by the courts to favor the actions of corporate managers.3 According to Henry Manne, a leading commentator on corporate law, the BJR protects from ju- dicial review “honest if inept business decisions” made by corpo- rate managers.4 By accomplishing this strategic objective, the BJR tries to obtain its ultimate goal - preventing courts from exer- cising regulatory authority over corporate management.5 The creation of the BJR as a means of obtaining this goal is a direct product of the time period in which it originated. The BJR first appeared in the 19th century, a time when there was a fear of gov- ernment regulation. Since then, the BJR has been used by the courts as a means to avoid the exercise of regulatory authority over corporations.6 1. Bernard Sharfman is a member of the DC and Maryland bars and a Class of 2000 graduate of Georgetown University Law Center. This article is dedicated to Mr. Sharfman’s wife, Susan David, for without her encouragement and editorial comments this article would never have been completed. Mr. Sharfman would like to thank Joseph Hinsey, H. Douglas Weaver Professor of Business Law, Emeritus, at the Harvard University Graduate School of Business Administration and James J. Hanks, Jr., Partner, Venable LLP and the author of Maryland Corporate Law for their helpful comments and insights.
    [Show full text]
  • A Comparative Analysis of Corporate Fiduciary Law: Why Delaware Should Look Beyond the United States in Formulating a Standard of Care
    COMMENTS HENDRIK F. JORDAAN* A Comparative Analysis of Corporate Fiduciary Law: Why Delaware Should Look Beyond the United States in Formulating a Standard of Care Corporate internationalization has altered the corporate landscape irreversibly. Specifically, international trading in securities and cross-border corporate owner- ship, directorship, and management have increased substantially.' In 1995 multi- national companies invested a record $315 billion outside their own national Note: The American Bar Association grants permission to reproduce this article, or a part thereof, in any not-for-profit publication or handout provided such material acknowledges original publication in this issue of The InternationalLawyer and includes the title of the article and the name of the author. *Hendrik F. Jordaan is a J.D. Candidate (1997) at Southern Methodist University. He is editor-in- chief of Southern Methodist University School of Law Student Editorial Board for The International Lawyer. 1. See generally Richard M. Klapow, Foreign Investment Company Law in the United States: The Need for Change in a Global Securities Market, 14 BROOK. J. INT'L L. 411 (1988) (citing OECD REPORT, THE COMMITTEE ON FINANCIAL MARKETS INTERNATIONAL TRADE IN SERVICES: SECURITIES (Paris, 1987)); Caroline A.A. Greene, International Securities Law Enforcement: Recent Advances in Assistance and Cooperation, 27 VAND. J. TRANSNAT'L L. 635 (1994); Arthur R. Pinto, The Internationalizationof the Hostile Takeover Market: Its Implicationsfor Choice of Law in Corporate and Securities Law, 16 BROOK. J. INT'L L. 55 (1990). This trend to expand corporate activities internationally is driven by the benefits of risk diversification, the enhanced profitability that interna- tional investment frequently offers, and technological improvements and reductions in regulatory constraints.
    [Show full text]
  • Monitoring the Duty to Monitor
    Corporate Governance WWW. NYLJ.COM MONDAY, NOVEMBER 28, 2011 Monitoring the Duty to Monitor statements. As a result, the stock prices of Chinese by an actual intent to do harm” or an “intentional BY LOUIS J. BEVILACQUA listed companies have collapsed. Do directors dereliction of duty, [and] a conscious disregard have a duty to monitor and react to trends that for one’s responsibilities.”9 Examples of conduct HE SIGNIFICANT LOSSES suffered by inves- raise obvious concerns that are industry “red amounting to bad faith include “where the fidu- tors during the recent financial crisis have flags,” but not specific to the individual company? ciary intentionally acts with a purpose other than again left many shareholders clamoring to T And if so, what is the appropriate penalty for the that of advancing the best interests of the corpo- find someone responsible. Where were the direc- board’s failure to act? “Sine poena nulla lex.” (“No ration, where the fiduciary acts with the intent tors who were supposed to be watching over the law without punishment.”).3 to violate applicable positive law, or where the company? What did they know? What should they fiduciary intentionally fails to act in the face of have known? Fiduciary Duties Generally a known duty to act, demonstrating a conscious Obviously, directors should not be liable for The duty to monitor arose out of the general disregard for his duties.”10 losses resulting from changes in general economic fiduciary duties of directors. Under Delaware law, Absent a conflict of interest, claims of breaches conditions, but what about the boards of mort- directors have fiduciary duties to the corporation of duty of care by a board are subject to the judicial gage companies and financial institutions that and its stockholders that include the duty of care review standard known as the “business judgment had a business model tied to market risk.
    [Show full text]
  • Fiduciary Responsibility Ian Lanoff
    Fiduciary Responsibility Ian Lanoff www.groom.com November 7, 2005 Trust Law Evolution • Old English law recognized trusts • Family trusts have existed for centuries • Pension funds emerged in the 1900s • In 1974, ERISA codified trust law applicable to private pension plans 2 Public plans – not subject to ERISA • But ERISA is extremely influential • Public plan laws are modeled after ERISA: – Most impose duties of prudence and loyalty – Many have fiduciary conflict provisions – Many have party in interest rules • Public plans trustees look to ERISA for guidance • ERISA provides a model for best practices 3 Today's Roadmap 1. Who is a fiduciary? 2. The 4 primary fiduciary duties 3. Procedural prudence 4. ETIs 5. Fiduciary misconduct (i.e., conflicts) 6. Co-fiduciary liability 7. Party in interest violations 8. Prohibited transactions under the IRC 9. Plan expenses 10. What can internal auditors do? 4 Who is a fiduciary? 5 Why is it important to know if you are a fiduciary? • Fiduciaries must satisfy the "highest standard of conduct known to law" • Fiduciaries who violate those standards may become personally liable 6 Definition of fiduciary • ERISA has a “functional” definition: – You are a fiduciary if your job involves a “fiduciary function” (regardless of what is in your job description) – Even if your job does not involve a fiduciary function, you are a fiduciary if take on a fiduciary function (i.e., act outside your job) – Ministerial acts are not fiduciary functions • Applicable state law may be different 7 What is a fiduciary function?
    [Show full text]
  • Addressing Duty of Loyalty Parameters in Partnership Agreements: the More Is More Approach
    Athens Journal of Law XY Addressing Duty of Loyalty Parameters in Partnership Agreements: The More is More Approach * By Thomas P. Corbin Jr. In drafting a partnership agreement, a clause addressing duty of loyalty issues is a necessity for modern partnerships operating under limited or general partnership laws. In fact, the entire point of forming a limited partnership is the recognition of the limited involvement of one of the partners or perhaps more appropriate, the extra-curricular enterprises of each of the partners. In modern operations, it is becoming more common for individuals to be involved in multiple business entities and as such, conflict of interests and breaches of the traditional and basic rules on duty of loyalty such as those owed by one partner to another can be nuanced and situational. This may include but not be limited to affiliated or self-interested transactions. State statutes and case law reaffirm the rule that the duty of loyalty from one partner to another cannot be negotiated completely away however, the point of this construct is to elaborate on best practices of attorneys in the drafting of general and limited partnership agreements. In those agreements a complete review of partners extra-partnership endeavours need to be reviewed and then clarified for the protection of all partners. Liabilities remain enforced but the parameters of what those liabilities are would lead to better constructed partnership agreements for the operation of the partnership and the welfare of the partners. This review and documentation by counsel drafting general and limited partnership agreements are now of paramount significance.
    [Show full text]
  • Fiduciary Duties and Potential Liabilities of Directors and Officers of Financially Distressed Corporations
    LATHAM & WATKINS ATTORNEYS AT LAW 53rd AT THIRD, SUITE I000 885 THIRD AVENUE NEW YORK, NEW YORK I0022-4802 TELEPHONE (2I2) 906-I200 FAX (2I2) 75I-4864 Fiduciary Duties and Potential Liabilities of Directors and Officers of Financially Distressed Corporations This memorandum provides a general review of the duties and potential liabilities of directors and officers of financially distressed corporations.1 First, this memorandum discusses generally the fiduciary duties of directors in the context of financially healthy corporations and proceeds to describe how these duties shift in the context of financially distressed corporations. This memorandum then discusses briefly the duties and liabilities of non-director officers. Finally, the memorandum identifies certain statutory and other liabilities of both directors and officers that may be of particular relevance to officers and directors of financially distressed corporations. We have focused our discussion primarily on Delaware law because of the persuasiveness of Delaware court decisions in the area of corporate law. In our review, we have sought to identify the principal types of duties and liabilities that might be implicated when a corporation is facing financial difficulties. We have not attempted to conduct a comprehensive survey of every possible statutory or common law duty or liability that could conceivably exist. I. Summary A. Directors of solvent corporations have two basic “fiduciary” duties, the duty of care and the duty of loyalty, owed to the corporation itself and the shareholders. 1. Directors must act in good faith, with the care of a prudent person, and in the best interest of the corporation. 2. Directors must refrain from self-dealing, usurping corporate opportunities and receiving improper personal benefits.
    [Show full text]
  • Judgment Rule Lindsay C
    This article appeared in the Spring 2013 issue of Commercial & Business Litigation, Vol. 14 No. 3. ©2013 American Bar Association, 321 N Clark St, Chicago, Illinois 60654; (312) 988-5607. All rights reserved. Breaking Down the Business- Judgment Rule Lindsay C. Llewellyn In the wake of corporate bankruptcies, government bailouts, and shareholder losses resulting from the economic downturn of 2008, shareholders are increasingly turning to derivative suits in an effort to hold someone responsible for their financial losses. Corporate directors stand in a fiduciary relationship of trust and confidence with the corporation and its shareholders. As fiduciaries, corporate directors owe the corporation and its shareholders fiduciary duties of diligence and fidelity in performing their corporate duties. These fiduciary obligations include the duty of care and the duty of loyalty. “In essence, the duty of care consists of an obligation to act on an informed basis; the duty of loyalty requires the board and its directors to maintain, in good faith, the corporation’s and its shareholders’ best interests over anyone else’s interests.” Shoen v. SAC Holding Corp., 137 P.3d 1171, 1178 (Nev. 2006) (citing Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 360-61 (Del. 1993)). In bringing shareholder derivative suits, shareholders seek to impose liability on corporate directors for failing to carry out their corporate duties in accordance with this standard of care. An important and powerful defense to such derivative suits lies in the common law “business- judgment rule.” What Is a Shareholder Derivative Suit? A shareholder derivative action is not a cause of action in and of itself, such as breach of contract or breach of fiduciary duty.
    [Show full text]
  • Robert T. Miller
    Robert T. Miller Professor of Law Fellow and Program Affiliated Scholar F. Arnold Daum Fellow in Corporate Law Classical Liberal Institute University of Iowa College of Law New York University School of Law Address: 492 Boyd Law Building Address: 40 Washington Square South University of Iowa New York, NY 10012 Iowa City, IA 52242 Phone: (319) 335-9001 Phone: (319) 335-9001 Fax: (319) 335-9098 Fax: (319) 335-9098 Email: [email protected] Email: [email protected] Web: http://law.uiowa.edu/robert-t-miller Web: http://www.classicalliberalinstitute.org/ SSRN: http://ssrn.com/author=518229 Courses Taught: Business Associations Antitrust Securities Regulation Mergers & Acquisitions Contracts Legal Capstone Course Law & Economics Deals Corporate Finance Capitalism Academic and Professional Experience: Professor of Law and F. Arnold Daum Fellow of Corporate Law, University of Iowa College of Law, 2012 to present. Committees and Service to the Law School: Co-Chair, Status and Reputation Committee (2021-present) Chair, Promotion and Tenure Committee (2012-2015, 2017-2021; co-chair 2016-2017; member, 2018- present) Chair, Curriculum Committee (Spring 2017; member, 2016-2021) Chair, LAWR (Legal Writing) Promotion and Reappointment Committee (2019-2020) Chair, Instructional Faculty Promotion and Reappointment Committee (2019-present) Member, Enrollment Management Committee for Three-Year JD Applicants (2016-2017) Chair, Faculty Appointments Committee/Entry Level (2015-2016) Member, Faculty Appointments Committee (2014-2015, 2020-2021) Chair,
    [Show full text]
  • Fiduciary Duties
    Legal Affairs & Association and MLS Governance JANUARY 2018 FIDUCIARY DUTIES IN A NUTSHELL 1. Pursuant to state law, individuals serving on an association’s board of directors as directors or officers (“Association Leaders”) owe fiduciary duties to the association. 2. Fiduciary duties are owed to the association and not to the association’s members. 3. In general, fiduciary duties require Association Leaders to act in good faith, in the best interest of the association at all times, and to never make decisions based on furthering a personal or outside business interest. 4. Specifically, fiduciary duties may include the duties of care, confidentiality, loyalty, obedience, and accounting. 5. Association Leaders must avoid, disclose, and resolve any conflicts of interest prior to voting or otherwise participating in any deliberations concerning an association matter. NUTS AND BOLTS Fiduciary Duty is defined by Black’s Law Dictionary as “a duty of utmost good faith, trust, confidence, and candor owed by a fiduciary (such as a lawyer or corporate officer) to the beneficiary (such as a lawyer’s client or a shareholder); a duty to act with the highest degree of honesty and loyalty toward another person and in the best interests of the other person.” An Association Leader’s specific fiduciary duties may include: 1. Duty of Care - requires Association Leaders to exhibit honesty, act in good faith, and exercise ordinary and reasonable care in the discharge of their duties. Directors must attend, thoroughly prepare for, and actively engage in deliberations during meetings, and when necessary, seek advice from third-party experts, such as attorneys or accountants.
    [Show full text]