There is extensive case law and detailed statutory provisions pertaining to the fiduciary duties of members of the board of directors and directors of public companies, as well as directors of private companies that have received substantial amounts of funding from venture capitalists and institutional investors, regularly attend in-person and online educational institutes and programs that focus on specific legal and ethical issues that they are likely to encounter during their work on the board and its various committees. In contrast, relatively little attention has been paid to the fiduciary duties of those persons who are charged with carrying out the directives of the board and managing the business on a “day-to-day basis”: the officers of the corporation. Case law regarding the duties and obligations of corporate officers is meager and there is no consensus on the applicability of well-known guidelines that are frequently cited when assessing director behavior, such as the “business judgement rule”. Moreover, attorneys purporting to specialize in corporate governance often concentrate their counseling on board members and spend relatively little time working with officers and providing them with guidelines that can be used for them to understand the potential legal ramifications of their conduct and the duties that might be imposed upon them outside of any specific employment-related agreement they might have with the corporation.
Recently scholars and governance commentators have come forward to offer several good reasons for taking specific steps to educate officers regarding their fiduciary obligations to the corporations that they serve. First, it can be expected that the conduct of officers will be subject to increasing scrutiny in a manner similar to the attention that has been focused on directors and thus it is in the interests of both the corporation and its individual officers for officers to understand the legal standards associated with their performance before a lawsuit is filed. Second, it is has been argued that formalized efforts to inform officers of their duties and obligations, and the resources available to them to discharge their duties in a proper and lawful manner, will increase the likelihood that officers will act properly, engage in positive conduct and refrain from actions that further their own interests at the expense of the corporation and its shareholders. Third, investing time and effort in educating officers provides a platform for explaining legal principles and concepts (e.g., duties of loyalty and care) that would otherwise remain vague and uncertain to officers. Experienced attorneys can and should provide officers with examples of how familiar legal principles work in practice and help officers determine when they should stop and seek the guidance of their superiors and counsel. Education fosters a sense of personal responsibility among officers and recognition that they, rather than the corporation’s lawyers, must ultimately be comfortable that their actions are consistent with their fiduciary duties to the corporation. Another byproduct of the attorney involvement in the education process is building a bridge between the officer and the attorney which makes the officer to be more comfortable approaching the attorney for advice and allows the attorney to proactively work with officers to spot and manage potential problems in a way that reduces the risk and potential liabilities for both the officer and the corporation.
Business counselors who will be working the corporate officers of their clients should be trained on the legal framework for the duties of executive team members, officers’ authority and standards of conduct under corporate laws and officers’ duties as a corporate agent under agency law.