- Duty of care requires directors to make decisions pursuant to the corporation’s interests with the diligence and prudence expected of a reasonable person.
- Duty of loyalty requires directors to place the company’s and shareholders’ interests before their own.
- These responsibilities necessitate a proactive commitment to establish appropriate goals and strategies, relevant metrics and measures, and effective performance-monitoring disciplines. These actions engender confidence and trust in the marketplace.
Why it matters: Stakeholder expectations and reliance on voluntary and obligatory disclosures are increasing. There are signs that legislators, regulators and the plaintiffs’ bar are gearing up for action.
By the numbers: There are important trends contributing to a shifting legal and regulatory landscape. They fall under 3 categories:
- Legal — Includes evolution of the Caremark standard, escalating books and records exposure.
- Regulatory issues — Includes heightened scrutiny and enforcement, expanded disclosures to investors, proliferating data privacy laws.
- Litigation — Includes civil actions resulting from cybersecurity and data breaches, D&O exposure, shareholder derivative suits.
The bottom line: There are actions boards can take to shore up their governance and oversight in light of these trends.
- Today’s dynamic legal and regulatory landscape points to a vital message: Trust is an essential element of an organisation’s success and reputation.
- Trust is earned through setting and articulating credible goals and strategies, establishing accountability for results, and emphasising fairness and transparency in market-facing communications.
- The rise of stakeholder capitalism makes it important for boards to prioritise building and maintaining trust in their decision-making and communications with management.
Go deeper. Read more here, including 10 examples of key trends as well as diagnostic questions for directors that provide a framework for them to consider as their boards facilitate discussions with management, including the general counsel.
(Board Perspectives — Issue 163)
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