Members of a Board and Management have certain duties that they must fulfill.
These include:
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Putting the Interests of the Company above Personal Interests.
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Avoiding Conflicts of Interest and Disclosing any Personal Relationships with the company
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Diligently carrying out the responsibilities.
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Acting Independently.
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Obeying the corporate constitution, policies, and procedures.
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Acting in accordance with the law.
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Acting in the best interests of the Company.
A Director or Officer of a corporation is expected to fulfill each of these duties. Failing to meet those obligations, even if the failure is only perceived, can result in heavy financial consequences for both the Directors and the Officers of the corporation.
This can result from an investor accusing the Board and Management of not fulfilling their responsibilities resulting in large financial losses.
An employee accusing the Board or Management of Discrimination.
A client accusing the Board or Management for Unfair Practices.
Under these circumstances, there are going to be costs for settlements, legal fees, consultants, etc.
A Directors & Officers Insurance Policy can help protect the members of the board and upper management from claims resulting from these situations.