USA Law and Practice Contributed by: Lisa Fontenot, Jennifer Broder, Per Chilstrom and Lothar Determann, Baker McKenzie
including the source of the director’s compensation (including any consulting, advisory or other compen - satory fees paid by the company to the director) and any affiliate relationships between the director and the company or any of its subsidiaries. Conflicts of Interest and Related Party Transactions Rules The stock exchanges require the audit committee, or another independent board committee, to: • review and evaluate all related party transactions for potential conflicts of interest; • oversee related party transactions; and • prohibit any related party transaction if it is deter - mined to be inconsistent with the interests of the company and its shareholders. SEC rules require companies to disclose related party transactions, subject to certain minimum criteria, in which a related party has a direct or indirect material interest, and any related party transaction where its policies and procedures either did not require review, approval or ratification, or were not followed. State law generally permits shareholders to chal - lenge director-conflicted transactions as breaches of the duty of loyalty. To mitigate this risk, most states have enacted safe harbour provisions that shield such transactions from per se voidability when at least one of the following three conditions is satisfied: • full disclosure of conflict-related material facts to the board, followed by approval from disinterested directors; • full disclosure of conflict-related material facts to the shareholders, followed by approval from disin - terested shareholders; or • establishing that the transaction is fair to the cor - poration. Delaware law, as amended in 2025, provides that transactions involving conflicted directors or offic - ers or involving controlling shareholders, other than going-private transactions (which must satisfy a more stringent set of safe harbour procedures), can be pro - tected from both equitable relief and damages liability if they are either approved by an independent board
committee consisting of at least two non-conflicted directors, or approved or ratified by a majority of the votes cast by the corporation’s non-conflicted share - holders. 3.6 Legal Duties of Directors/Officers Directors and officers of US companies owe the core fiduciary duties of the duty of care and the duty of loyalty to the corporation and its shareholders. Other duties, such as the duties of good faith, confidential - ity, candour, oversight and obedience of officers, are generally treated as obligations that stem from the fiduciary duties of care and loyalty. Duty of Care The duty of care involves responsible decision-mak - ing and ongoing oversight of corporate activities. Directors and officers must be fully and adequately informed, and must act in good faith, in a considered manner with the care that an ordinarily prudent per - son would exercise in a similar position and under similar circumstances. This includes making informed decisions, conducting reasonable inquiry as circum - stances warrant, and relying appropriately on infor - mation from officers, employees and experts, unless the director has knowledge that reliance is unwar - ranted. The business judgement rule generally pro - tects unconflicted directors and officers from liability for decisions made in good faith and with reasonable care. Duty of Loyalty Directors and officers must place the best interests of the corporation and its shareholders above their own or those of another stakeholder (different standards apply for public benefit corporations). Directors and officers must avoid: • causing harm to the corporation; • usurping corporate opportunities; • engaging in conflicts of interest; • competing with the corporation without proper approval; • favouring one group of shareholders over another; and • violating the law.
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