Loyalty in the Board Room

Philadelphia partner Doug Raymond’s latest column for Directors & Boards, written with the assistance of associate Amanda Murray, was published in the Fourth Quarter 2012 issue of the magazine.

Doug, a partner in the firm’s Corporate and Securities Practice Group, discusses a recent Delaware case that reminds directors of the risks involved in acting on behalf of just one constituency at the expense of the corporation on whose board they serve. Shocking Technologies, Inc. v. Michael, was brought by a privately held Delaware corporation against one of its directors. The company alleged that the director had breached his duty of loyalty to the company by revealing confidential information to a third party and interfering with a critical financing transaction.

Doug discusses the fiduciary duty of loyalty, which he says “together with the duty of care, are the most fundamental obligations of corporate directors.” He says the opinion in Shocking lays out a continuum along which an action with adverse short-term consequences may nonetheless be proper if its eventual benefit outweighs the short-term costs. “Directors should be aware that that this continuum exists and should proceed very cautiously in taking actions that are reasonably likely to cause significant risks to the Company,” says Doug. He adds that it is “never a good idea to share confidential information learned in the boardroom with outsiders unless appropriately authorized.”