or bring a shareholder derivative suit and sue on behalf of the corporation.

Breach of Fiduciary Duty

Breach of the fiduciary duty of care arises either through the board of directors making a decision in a negligent manner (e.g. lack of involvement and failure to monitor managers) or failing to act to avoid a preventable loss (e.g. failure to monitor and prevent employees’ non-compliance with law).

Breach of the fiduciary duty of loyalty generally occurs when there is director self-dealing – the director obtains a benefit at the expense or to the detriment of the corporation or its shareholders. Examples of breach of the fiduciary duty of loyalty include:

• A director, or an affiliate of the director, has some hidden interest in a transaction;

• A director deprives the corporation of an opportunity that would be of interest to the corporation;

• A director receives undisclosed, third-party compensation (e.g. a broker’s fee) for arranging a transaction that involves the corporation; or

• Directors compensate themselves excessively, at the expense of shareholders (e.g. awarding and backdating stock options).

Fiduciary Liability

Breach of fiduciary duties either by a director or the board of directors exposes the entire board or a particular director or directors to shareholder lawsuits. A shareholder(s) can sue the corporation and/or director(s) directly (e.g. Shareholder A sues Director X) or bring a shareholder derivative suit and sue on behalf of the corporation. Remedies vary, but range from the court preventing the taking of an action or ordering that transaction proceeds be handed over to the corporation.

http://www.shajlaw.com/media/reports/BoardofDirectorFiduciaryDuties.pdf