Duty of Directors

BCL SEC. 717

A director shall perform his duties, including his duties as a member of any committee of the board upon which he may serve, in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances. In performing his duties, a director shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, prepared or presented by professionals.

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"I see people on boards who are in the right church but the wrong pew. They’re professionals, but they are making decisions in areas where they have no expertise. Boards typically don’t want to spend money, so they look for ways to save – and often do it foolishly. They don’t hire a lawyer because it’s too expensive. Or they hire an engineer but don’t listen to the engineer’s advice, because it would cost too much. Under the Business Judgment Rule, if the board hires professionals and listens to their advice, the board is protected. Boards should rely on people who are acting within their area of competence. If a board relies on people who are not competent to give advice, then the board members themselves may be at risk for a bad outcome, in addition to the co-op or the condo."

To read the full lecture, visit: http://bit.ly/PWeisberg