Director Liability

The directors and officers of a corporation reap many rewards as a result of their titles and the work that they do on behalf of the company, but the positions carry risks as well. An officer or director is a representative of the company and also has a fiduciary duty to the company, and because the position carries such a profound impact on the organization’s operations, it also carries potential liabilities. When state or federal authorities, shareholders, employees, customers or suppliers believe that a company is in the wrong, it is often the company’s officers that are targeted in lawsuits. Officers may be subject to liability in securities fraud class actions, insider trading investigations, corporate governance disputes, claims for negligence or bad faith, and more.  They may also be held liable for fiduciary failures. The attorneys of Bochetto & Lentz are knowledgeable in all areas of liability and are able to provide legal representation and defense against all types of director liability claims.

Generally speaking, directors and officers of a corporation have three basic responsibilities to the organization. They are:

  • Duty of Care

Duty of Care may also be referred to as Duty of Diligence, and it refers to acting in good faith on behalf of the company.

  • Duty of Loyalty

The Duty of Loyalty means that officers are expected to place the organization’s interests ahead of their own personal interests.

  • Duty of Obedience

The Duty of Obedience is a demand that the officers act in accordance with the organization’s rules and laws.

If any of those duties are not adhered to then shareholders and corporate insiders are able to file suit against the directors and officers responsible.

Many of the claims filed against corporate officers are for breach of fiduciary duty and are based on a belief that the business has suffered harm because the officer didn’t live up to his obligations.  Fiduciary duty is the responsibility that a corporate director or officer has to act in the best interest of the corporation over their own interest and to be loyal, act in good faith and with integrity. Examples of breaches of fiduciary duty include the use of the company’s assets for personal benefit or gain, leaving the corporation without providing ample or appropriate notice, having a financial interest in a company with which the corporation is doing business, or directing business towards a company with which the officer has an association. Similarly, suits can be filed for nonperformance of the actual duties of their job.

Corporate officers can also be held liable for misconduct, particularly if they have participated in or authorized the wrongful act or engage in fraud. An officer cannot escape liability by indicating that their actions were taken on behalf of the organization. However, if the director’s actions are deemed negligent rather than intentional, personal liability is generally avoided.

Director liability is a complex area of law that requires experience and specialized knowledge. The Philadelphia law firm of Bochetto & Lentz vigorously defend officers against liability claims filed by shareholders, regulatory agencies and more.