Corporate governance is personal: directors should make a complex decision as if they were facing a similar situation in their own business affairs or those of another close family member.

• Author: Raymond, Doug
• Position: LEGAL BRIEF

Sarbanes-Oxley, Dodd-Frank, the explosion of litigation against directors and a myriad of other factors have added substantially to the obligations of boards of directors since this journal first began publication. These trends have been reported in these pages effectively and pragmatically over the last 40 years. In response, directors have naturally come to think of their roles as highly complex and difficult to master. Hundreds of treatises, 'master classes,' journals and consultants offer best practices, checklists and other advice on how to be a responsible and effective director and demonstrate proper and legally sound corporate governance principles.

The work that today's corporate directors are called on to do, particularly when they sit on boards of a public or global business, is undeniably complex, demanding, and subject to constant second-guessing by regulators and the plaintiffs' lawyers. However, at its core, the essential requirements of good corporate governance have not changed all that much. Good governance, and the legal obligations of directors, remain centered on the effective implementation of the fiduciary duties that directors owe to the company and its stockholders; principally the duty of care and the duty of loyalty.

When facing a challenge or a complex and nuanced decision, if a director wants a check whether they are on track they should ask themselves the fundamental question that has long been at the core of the directors' obligations: Are they doing everything that they would reasonably expect to do if faced with a similar situation in their own business affairs, or those of their parents or another close family member.

Readers of this journal know well that the duty of care requires directors to use reasonable care and prudence in carrying out their responsibilities. If a director is making an important decision for themselves or for a close relative, they would do their homework--looking at reviews of experts, examining the financial ramifications and seeking out the relevant experience of others whom they respect. They most likely would not make a hasty decision simply because a promoter had recommended it or had pressured them to decide. It is essentially the same when the board considers an important matter for a company. Directors should approach the issue as though it was their own money they were spending, or that of their relatives.

When we make decisions that are important in our personal lives, we...