Duties and Obligations of Board Directors

Duties and Obligations of Board Directors

Our business law firm has helped countless individuals form corporations.  Our business lawyers also assist companies that are already formed.  Our Sacramento business lawyers work with corporations on the daily operations by regularly explaining the duties and obligations of board directors.  Every new board director should immediately understand the broadly defined duties and then work towards understanding the more specific duties as time progresses.  This post is to discuss the duties and obligations of board directors for a broad understanding and also includes some of the specific duties.

California Corporations Code - Directors and Management

The very first section of the California Corporations Code defines the duties of board directors as managing the corporation’s business and affairs, and, subject to any requirements for shareholder approval, all corporate powers must be exercised by or under the direction of the board.  Corp. C § 300(a) fn1.  Although this section appears straight forward, the law has adapted with time.  For example, the board directors are not required to personally manage the day-to-day operations; otherwise, each board director would be seriously time swamped.  In reality, the board directors may delegate their duties to officers.  Board directors should still oversee the officers and officers' actions should be at the direction of the board directors.

Broad Responsibility

Although the board directors may delegate their day-to-day operational duties, the board members still have fiduciary duties and responsibility to the corporation.  One group lists the board directors broad responsibilities as follows:
  • Developing a Strategic Plan. It is the board directors' responsibility to ensure “that a strategic planning process is in place, is used, and produces sound choices,” and to monitor the plan’s implementation.

  • Selecting management. It is the board directors’ responsibility to see “that the company has the highest caliber CEO and executive team possible and that certain senior managers are being groomed to assume the CEO’s responsibilities in the future.”

  • Overseeing management. The board directors must ensure "that the company has adequate information, control, and audit systems in place to tell it and senior management whether the company is meeting its business objectives … [complying] with the legal and ethical standards imposed by law and the company’s own statement of values … [and] preventing and managing crises—that is, for risk management."  fn2.

Shareholder Expectations

A Delaware Supreme Court Chief Justice listed seven shareholder expectations of board directors as follows:
  • Ensure shareholder rights. The board should ensure that the shareholders will have the right to vote on the board and on fundamental changes.

  • Direct, not merely advise. The board should actually direct the management of the company and not simply be advisors to the CEO.

  • Select management. The board should hire competent managers.

  • Take charge of the business plan. The board should develop and monitor a business plan and monitor the managers as they carry out the operations of the company.

  • Exercise sound business judgment. The board should act in good faith, on an informed basis, and with a rational business purpose.

  • Act with honesty and loyalty. The board should operate with basic honesty and loyalty.

  • Ensure legal compliance. The board should take reasonable steps to ensure that the company complies with applicable laws. fn3.

Contact Sacramento's Business Lawyers

There are several duties and obligations of board directors.  Our business lawyers work with corporations to guide their directors through their duties.  We listed a few of the important broad duties and a few specific duties, but there is a lot more to learn.  If you're interested in discussing the duties and obligations of board directors, please contact Sacramento's business attorneys to set up an initial meeting.

Call Us: (916) 642-9399

*The information provided in this post does not constitute legal advice or opinion. The information is for guidance purposes only. Individual situations vary and you should contact us for a consultation. Sacramento Business Lawyers Duties and Obligations of Board Directors.

Sacramento Duties and Obligations of Board Directors Resources

Footnotes

FN1: Corp. C § 300(a).  Subject to the provisions of this division and any limitations in the articles relating to action required to be approved by the shareholders (Section 153) or by the outstanding shares (Section 152), or by a less than majority vote of a class or series of preferred shares (Section 402.5), the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board.



FN2:  Conger, Finegold, & Lawler, Appraising Boardroom Performance, 76 Harv Bus Rev 136, 139 (Jan.–Feb. 1998).

FN3:  An Economic Rationale for Judicial Decisionmaking in Corporate Law, 53 Bus Law 681, 694 (1998)