Duty of Care Defined
The duty of care is a legal obligation that prohibits a person or an organization to act in a way that could foreseeably cause harm to others. It obligates an entity to adhere to a standard of reasonable care while performing an act. Standard of care is the attention, caution, and prudence that an ordinary reasonable person would use in the given circumstances.
A Little More on the Duty of Care
It can be seen as a formalization of the social contract of not harming anybody knowingly. It is often defined by the jurisprudence and common law. If a person or organization fails to meet the standard of care while performing an act, that act is considered negligent. If that negligence causes any harm to anybody, the affected persons can file a lawsuit for negligence.
However, the standard is not applied uniformly to all, as the expected level of prudence and reasonableness varies greatly. The rationality of an infant does not match that of an adult, similarly, the degree of expected prudence differs between an unskilled and a skilled person.
In corporate law, the duty of care is a fiduciary responsibility for the directors of the companies. It obligates them to take decisions reasonably and with appropriate prudence. The directors need to make decisions based on all available information with a prudent judgment promoting the company’s best interest.
This fiduciary responsibility requires a director to act reasonably after gathering information using good and independent judgment. He or she may also invite expert opinion, refer to the meeting minutes and seek legal advice. Directors are also responsible for scheduling meeting for discussing budget issues, executive compensation, legal compliance, and strategic direction.
Shareholders can file a lawsuit against the board of directors if the directors fail to fulfill the duty of care.