Board of Directors Duty

Gwen and Gale are very concerned about a $200,000 budget line item called “AlbMoneyForFun.” Based on this discovery and their observation of Stewart and Ken, it appears that there is a misappropriation of funds. Should Gwen and Gale pursue this issue?

The Duty of Loyalty requires that they act in good faith and in a way that they believe is in accordance with the best interests of WCOIYP, Inc. They have a belief that misappropriation is going on and it is a reasonable belief that a reasonable person could have in their circumstances. Why would a CEO make all the presentations concerning the budget when clearly this is a CFO’s field of expertise?

Negligence is also an issue here. However, in order to prove negligence, several things must be established. There must be a duty owed. In this case, it would be a duty to the corporation. The Duty of Care and Duty of Loyalty would most likely be used in this case. The scope of the duty, causation, and damage flowing from the breach of duty are the other items that must be established.

After discovering the “AlbMoneyForFun” item, one could suspect that it is probably being used by Stewart to cover his expenses to attend all New Orleans Saints games. His office has also been recently furnished with an autographed Marques Colston helmet and jersey, a Deuce McAllister rookie card, and an autographed Drew Brees football. Most recently, Stewart boasted winning an eBay auction for an Upper Deck Authenticated autographed miniature replica of the Superdome signed by the entire New Orleans Saints team. However, at this point, this is still all speculation.

The Duty of Care requires that Gwen and Gale be informed and make good faith decisions intended to further WCOIYP’s purposes. They also must also exercise a degree of diligence, care, and skill that an ordinary prudent person would in similar circumstances. Based on their findings, it can be safely assumed that any prudent person would question the line item. It is their duty to do everything reasonably practicable to protect the corporation.

Gwen and Gale must make sure that their actions are made with care, attention, caution, and prudence, or their actions may be considered negligent. As directors, they are generally not liable for negligence unless it is gross or willful