A Board of Directors (aka Board of Trustees) has responsibilities to others, known as stakeholders, who are affected by its actions. As a result, depending on insurance and other factors, individuals may put personal assets at risk when they join a Board. For example, if a small, local non-profit sponsors an event and a visitor trips over a power cord and severely injures himself in the fall, the well-meaning, volunteer board members may be held personally liable for medical bills. Alternatively, if a large public company elects to acquire a privately held company owned by one of its Board members, who advocates and votes in favor of the acquisition, and the publicly held company arguably over pays significantly for the purchase, shareholders may sue the Board members. Below is a very brief list of some of the potential points of liability and their consequences for Board members.
- For Poor Decision Making – Hard to prove, hardly ever goes to court, results in small settlements at worst, usually covered by D&O insurance.
- For Negligence – Usually hard to prove or quantify, sometimes goes to court and results in substantial settlements, usually covered by D&O insurance.
- For Conflict of Interest – Relatively easy to prove and carries potentially severe costs, court judgements and substantial settlements are not unknown, usually not covered by D&O insurance.