Introduction
Few topics have attracted as much attention in recent years as corporate governance and the shareholder litigation associated with it. Most of the attention has focussed on compliance with new corporate governance rules which, for the most part, deal with structural issues. In other words, rules concerning the number of independent directors, the existence of certain committees of the board and circumstances in which independent committees are required.
What the focus on structure often leaves unsaid is that structure is not the end goal of effective corporate governance. Structure is a means, not an end. The true end goal of effective corporate governance is critical analysis by corporate directors. This is also what courts demand of directors. It is surprisingly simple for directors to protect themselves from liability to shareholders: they must be rigorous, diligent and analyse issues brought before them with a critical eye. As simple as this sounds, it can be surprisingly difficult. Difficult not because it requires particular skill but because it is contrary to human nature. It is sometimes difficult even for strong, skilled individuals to be the lone voice saying you do not understand, you want further information or you object to a particular course of conduct. This booklet is intended to set out in summary form what courts demand and why they demand it in an effort to make battling human nature a little easier.
Although it deals with legal concepts, the booklet is written for a business audience and does not cite case law or specific statutory provisions.
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The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2015