Director Resignation and Fiduciary Duties

Philadelphia partner Doug Raymond’s latest column for Directors & Boards, written with the assistance of associate Alexander Meiseles, was published in the First Quarter 2013 issue of the magazine.

Doug, a partner in the firm’s Corporate and Securities Practice Group, discusses a recent Delaware Chancery Court case that deals with the general principle that a director is free to resign from a board, so long as the corporation is not left entirely without leadership as a result.

In In re: Puda Coal, Inc. Stockholders Litigation, a director’s decision to resign was reviewed under the analysis adopted in the Caremark line of cases, and has special application to directors serving on boards of corporations with significant offshore operations.

Doug discusses the facts of the case and the court’s reasoning in rejecting the directors’ motion to dismiss, citing their failure to monitor the corporation’s insiders, as well as their decision to “run away” upon learning of alleged misdeeds.

Doug says the implications the case “are significant for directors of global businesses, particularly those primarily located outside the U.S.”

“As globalization increasingly leads to companies shifting their assets and operations to foreign countries, directors located in the U.S. must nonetheless provide effective oversight of the business,” he says.