Duty of Care (Board of Directors) – Definition

Cite this article as:"Duty of Care (Board of Directors) – Definition," in The Business Professor, updated November 23, 2018, last accessed October 20, 2020, https://thebusinessprofessor.com/lesson/duty-of-care-explained/.


Duty of Care Definition

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鈥檚 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.

References for a Duty of Care

Academic Research on Duty of Care

路聽聽聽聽聽聽 The responsibility to protect as a聽duty聽of聽care聽in international聽law聽and practice, Arbour, L. (2008). Review of International Studies,聽34(3), 445-458. This article discusses the responsibility to protect the norm in international law. The history of the concept of the norm is contrasted with the doctrine of humanitarian intervention. The article also examines how and when the norm is applied and the role that UN institutions can play in its application.

路聽聽聽聽聽聽 The聽Duty聽of聽Care, the Business Judgment Rule, and the American聽Law聽Institute Corporate Governance Project, Hansen, C. (1992). Bus. Law.,聽48, 1355. This article addresses the application of the business judgment rule.

路聽聽聽聽聽聽 Corporate Directors’聽Duty聽of聽Care: The American聽Law聽Institute’s Project on Corporate Governance, Frankel, T. (1983). Geo. Wash. L. Rev.,聽52, 705.

路聽聽聽聽聽聽 The聽duty聽of聽care聽of corporate directors and officers, Eisenberg, M. A. (1989). U. Pitt. L. Rev.,聽51, 945.

路聽聽聽聽聽聽 The聽Duty聽of聽Care聽Component of the Delaware Business Judgment Rule, Horsey, H. R. (1994). Del. J. Corp. L.,聽19, 971.

路聽聽聽聽聽聽 Corporate power and responsibility: Issues in the theory of company聽law, Parkinson, J. E. (1995). OUP Catalogue.

路聽聽聽聽聽聽 A good faith revival of聽duty聽of聽care聽liability in business organization聽law, Bishop, C. G. (2005). Tulsa L. Rev.,聽41, 477. The core fiduciary duties of care and loyalty have long been the most important and controversial theories of director liability in corporate law. The Delaware business judgment rule virtually eliminated duty of care, making it difficult for corporate directors to be held liable for poor decisions. The 2006 decision on the Walt Disney Company Derivative Litigation demonstrates just how difficult it is to prove director liability in the face of the business judgment rule and legal liability protections. The author argues for a rethinking of the good faith duty as a means to holding directors more accountable for misconduct.

路聽聽聽聽聽聽 The relevance of the聽duty聽of聽care聽standard in corporate governance, Bradley, M., & Schipani, C. A. (1989). Iowa L. Rev.,聽75, 1.

路聽聽聽聽聽聽 Demise of the Director’s聽Duty聽of聽Care: Judicial Avoidance of Standards and Sanctions Through the Business Judgment Rule, Cohn, S. R. (1983). Tex. L. Rev.,聽62, 591. This article addresses the extent to which courts demonstrate too much deference to management pursuant to the business judgment rule.

路聽聽聽聽聽聽 Negligence in the air: the聽duty聽of聽care聽in climate change litigation, Hunter, D., & Salzman, J. (2006). U. Pa. L. Rev.,聽155, 1741.

路聽聽聽聽聽聽 Re-examining legal transplants: The director’s fiduciary聽duty聽in Japanese corporate聽law, Kanda, H., & Milhaupt, C. J. (2003). The American Journal of Comparative Law,聽51(4), 887-901.


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