Weighing Fiduciary Duties With 21st Century Realities ' Evaluating the Viability of Remote Participation for Boards of Directors

• Publication year: 2014

Weighing Fiduciary Duties with 21st Century Realities ' Evaluating the Viability of Remote Participation for Boards of Directors

Aaron M. Esman

WEIGHING FIDUCIARY DUTIES WITH 21ST CENTURY REALITIES—EVALUATING THE VIABILITY OF REMOTE PARTICIPATION FOR BOARDS OF DIRECTORS

The laws governing a board of directors are grounded in the principle that directors owe certain fiduciary duties to the companies they serve.¹ Those same laws, determined by states, are often outdated and fail to take into account the ways in which modern technology can help boards operate more efficiently. One way that modern technology could have a large impact on a board is by enabling remote participation in formal board activities.² This use of remote participation, similar to that which is currently used for remote stockholder meetings, should be accepted as standard in the corporate law of all states.

In a majority of states, remote participation is already allowed for stockholder or shareholder meetings.³ For instance, Delaware, a recognized leader in corporate law, with over half of all Fortune 500 companies incorporated within the state,⁴ codified standards for remote participation in stockholder meetings.⁵ Stockholders who are not able to be present in person now have the opportunity to participate through the utilization of video or telephone conferencing.⁶ Of states that allow for remote participation, some require that the company's board of directors first approve the use of the remote participation for stockholder meetings.⁷

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Directors have specific duties owed to the corporation that do not apply to mere stockholders, including the duties of care and loyalty.⁸ Directors who cannot participate in board meetings risk breaching these duties and, as a result, face substantial legal consequences.⁹ There is an understandable fear that directors who participate remotely would not be as actively invested in a board meeting, and thus might risk violating the duties they owe to a corporation. These concerns are misplaced, however, as a director who chooses to participate remotely would be held to the same standard as a director who attends the meeting in person. Thus, the remotely participating director would be required to be actively involved. Furthermore, new technology would actually serve to protect stockholder interests because director involvement could increase through remote participation. It would allow directors, many of whom may not live near the location of...