As a member of the board of directors of any organization, you have certain obligations to the organization and the rest of the board. In addition, each of your fellow directors has a right to expect that you and the other directors will respectively observe their director obligations.
The following are some of the basic obligations of a director of any organization. Each director should:
Observe the duty of loyalty to act in good faith, to the extent possible, in the best interests of the organization (1)
When that is not possible, you should disclose to the board any potentially conflicting interest that may adversely affect (2), or have the appearance of adversely affecting, your ability to make independent judgments as a director. You should excuse yourself from participating in consideration of any matter in which you may be perceived as having an interest opposed to the best interests of the organization, and if that opposing interest is with respect to a matter material to the organization and is likely to be ongoing, you should consider tendering your resignation.
Excusing yourself from participating in consideration of a matter generally means: You excuse yourself not only from speaking or being observed, but also from being able to hear or observe others, during consideration of the matter; you waive your right to withhold approval of any statement in the minutes reflecting the consideration of the matter other than to reflect your absence from the consideration and your absence or abstention in any vote on the matter; and you waive your right, discussed below, for reconsideration of the matter.
If a director with a conflicting interest with a matter does not so excuse himself or herself, any other director should have the right to move to refer the matter to a committee that does not include the conflicted director (3).
Abide by the principle that a board speaks with one voice
Your duty of care and loyalty as a director requires you to abide by the decision of a majority of the board at a meeting at which a quorum is present (4). This applies to all matters coming before the board for its consideration. The board speaks with one voice on all such matters, or not at all (4). Occasionally on matters where it is important to have a single message, the board will speak only through its chairperson or the chairperson’s designee.
If you disagree with a decision, your rights are to vote against that decision, to have your negative vote recorded in the minutes (5), and when and if appropriate, to request reconsideration of the decision (6). Because the board speaks with one voice, asking for reconsideration of a matter should be done sparingly. Reconsideration should not be requested when the matter has been executed, even partially, or something has been done that the organization cannot undo, or when party has received notice of the vote and has taken action in reliance upon it.
Unless otherwise determined by the board, the following procedures will be followed with respect to any request for reconsideration:
A request to reconsider can be made regardless of the time that has elapsed since the vote was taken (unless the matter has been executed, or something has been done that the organization cannot undo, or when party has received notice of the vote and has taken action in reliance upon it).
The request can be made by any director, including one who voted with the prevailing side, or one who voted with the losing side, or one who did not vote at all or was absent.
Unless the directors who vote with the prevailing side are present or have received notice that reconsideration will be moved, Roberts Rules of Order requires a two-thirds vote of directors at a meeting at which a quorum is present in order to adopt any motion to reconsider (7).
Generally, “what happens in a board room remains in the board room” unless you believe that your remaining silent will result in a material breach of fiduciary duty or violation of law.
Perform the duties and functions of a director with the care that an ordinarily prudent person in a like position would use under similar circumstances (8)
This is each director’s duty of care under general corporation law (8). Unless consideration of a matter is expressly delegated to a designated committee of the board, you have both (i) the obligation to, and (ii) the right of reliance that each other director will, exercise this degree of care with respect to each matter, and vice versa.
To the extent possible as a best practice, make available to the board and management the benefits of your knowledge, skills and experience
Acting with the care of an ordinarily prudent person is a minimum standard to avoid breaching your duty care. A better practice is for you to make available to the board and management the benefits of your knowledge, skills and experience. Mentorship is one of the major functions of board members. Mentorship is making available your knowledge, skills, and experience of having been there and having done it before (9).
Benefits of mentorship include: Expanding the board’s effectiveness as an “expertise” board making available for the benefit of the organization the collective knowledge, skills and experience of each of its members; making it less lonely at the top of management; providing coaching and fostering relationships between board members and management; and making board members and management each accessible to the other.
Observe the expectation and right of reliance
The foremost principle of corporate governance is that the board and its committees are expected, and Ohio law gives the board and its committees the right, to rely upon:
- Officers or employees as to matters for which the director reasonably believes they are reliable and competent;
- Professionals such as lawyers or accountants as to matters that the director reasonably believes are within the person's professional competence; and
- Duly established committees of directors for matters within their designated authority, which the director reasonably believes to merit confidence (10).
The concept is that the organization is managed “under the direction” of the board (11), and the most important responsibility of the board is to select management, including at least a chief executive officer, whom the board believes is reliable and competent in managing the organization.
A developing principle of corporate governance is that directors who believe that they do not have available to them the expertise to consider a matter have the right for the organization to provide to the board professionals or other consultants having such expertise.
Assure that outside or independent directors have basic rights
Outside or independent directors are not only the first and best line of defense against corporate mismanagement and fraud, but also the best source of best practices for good governance. Therefore, all directors should assure that outside or independent directors have at least the following basic rights under applicable corporate governing documents, including to:
Have matters included on the agenda for consideration at any meeting of the board or any committee;
- Create a committee of the board composed of members with appropriate independence and expertise, and otherwise cause any matter to be referred to that committee for its consideration;
- Cause the board or any committee to meet in executive session of the outside or independent members and with or without legal counsel or other advisers deemed appropriate by those member; and
- Cause recusal of any member from consideration by the board or any committee of any matter in which a member has a perceived conflict of interest, including excusing the member not only from speaking or being observed, but also from being able to hear or observe others, during consideration of the matter; waiving the member’s right to withhold approval of any statement in the minutes reflecting the consideration of the matter other than to reflect the member’s absence from the consideration and the member’s absence or abstention in any vote on the matter, and waiving the member’s right for reconsideration of the matter.
