Duty of Care
General Statement: In addition to owing a duty of loyalty to the corporation, the corporate director also assumes a duty to act carefully in fulfilling the important tasks of monitoring and directing the activities of corporate management. The Model Business Corporation Act, as recently amended, sets forth the legal standard as follows: "[a] director shall perform his duties as a director, including his duties as a member of any committee of the board upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interests of the corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances."
A passage from the revised edition of the "Corporate Director's Guidebook" [Spring 1978]. The Guidebook was prepared by the Committee on Corporate Laws of the American Bar Association and approved by the ABA in January 1978.
The Business Roundtable Weighs In
Focusing more narrowly on the board of directors, critics complain that:
* Directors do not spend enough time on board work to be effective. They routinely attend meetings, participate passively and collect a fee.
* Boards are handpicked by the chief executive officer and are therefore submissive to him. They are rubber stamps.
* Shareholders have no voice in the nomination of directors.
* Directors are poorly informed on company matters and, therefore, poorly prepared for board discussions.
* Boards are too homogeneous. Directors are all cast from the same mold, and therefore will not 'rock the boat.'
From "The Role and Composition of the Board of Directors of the Large Publicly Owned Corporation" [Winter 1978]. The monograph from the Business Roundtable appraised the strengths and deficiencies of corporate boards.
The Board as Victim of Groupthink
There are strong pressures exerted toward uniformity of opinion in groups. Such pressures can reduce the efficiency of the group process and produce disastrous decisions. Vigorous pressure for group solidarity or cohesiveness may override encouragement to generate good solutions. I.L. Janis used the term "groupthink" to indicate this tendency in some groups.
According to Janis [in the 1972 book, Victims of Groupthink], groupthink is characterized by: (1) the illusion that the group is invulnerable; (2) a collective effort to rationalize; (3) a tendency to ignore ethical and moral consequences of group decisions; (4) stereotyped views of other groups...