Memorandum: regarding the responsibility of directors and an outline of the program suggested as the basis of cooperation between officers and directors of a corporation.

• Author: Weinberg, Sidney J.
• Position: Role Of The Board

RECENTLY THERE WAS handed down an opinion by Justice Black of the Supreme Court of State of New York emphasizing very strongly the responsibility of directors to corporations for all matters in connection with the management of their affairs. Moreover, the recently enacted Federal Securities Act imposes very stringent liabilities upon directors of corporations in connection with the issuance of new securities.

The coincidence of both these things happening about the same time has served to focus public attention on the question of a director's liability, and similarly it has given food for thought to men like myself who are directors of several companies as to whether or not we are discharging our duties as directors in a manner in keeping with the spirit and letter of the law and in conformance with what stockholders have come to expect of directors.

Without desiring to make this memorandum legalistic, I quote a few extracts from the legal opinion referred to above, merely to give the reader the gist of such opinion:

"Directors should direct."

"... the directors of a corporation are charged with the duties of trustees and bound to care for its property and manage its affairs in good faith, and for a violation of that duty resulting in waste of its assets, injury to its property ... they are liable to account in equity the same as ordinary trustees."

"The law of this state is that to avoid liability for misfeasance or non-feasance, directors are bound to exercise the same degree of care in their office that men of common prudence generally show in their own affairs.... "

"... where they [directors] accept these positions of trust they are expected and required to give them the care and attention that a prudent man should exercise in like circumstances and charged with a like duty, usually the care that he shows in the conduct of his own affairs of a similar kind ..."

"The law has no place for dummy directors."

The problem comes down to the question of the extent and quantity of information which a corporation ought to provide each director regularly and in a satisfactory manner in order to enable him to exercise the reasonable care of a prudent man in the discharge of his duties. To go to extremes in either direction may be equally as unsound to the best interests of all concerned. It obviously would be a short-sighted policy to set up a working arrangement between the executives of a business and the board of directors which prevented the...