24 Hoosier Banker November 2016 DIRECTORS / SENIOR MANAGEMENT Bank directors must know their duties, responsibilities and regulators. It is a well-settled principle of law that directors owe fiduciary duty to the corporation, and possibly to shareholders. Directors of a corporation are not trustees in the strict sense of that term, because they do not have title to the assets of the corporation, but they are fiduciaries, because they control the property of the corporation. Thus, directors who violate their duties may be liable for any loss caused by such behavior. “Know your duties.” A director’s two primary duties are the duty of care and the duty of loyalty. The duty of care requires a director to become and remain reasonably informed in making decisions and overseeing the business of the bank. In order to properly discharge this duty, a director should commit a sufficient amount of time to preparing for, attending regularly and participating in board and committee meetings. Additionally a director should rely on others with expertise when the director’s own expertise is insufficient, inquire into potential problems and engage in candid discussion with other directors. The duty of loyalty requires a director to not use the director’s position of trust and confidence to further the director’s private interest. Fortunately directors of Indiana corporations and state-chartered banks and nationally charted banks and savings associations will generally not be second-guessed on their decisions by a court. This is due to the “business judgment rule,” the basic principle of judicial reluctance to interfere in corporate matters, including the exercise by directors of discretion in managing corporate affairs. A court will not substitute its judgment for that of directors by stopping or setting aside a transaction, or charging the directors for any losses that result from a decision, for which there was a reasonable basis. This rule applies where the directors acted in good faith and exercised their independent judgment and discretion, uninfluenced by any consideration other than what they believed to be the best interests of the corporation. The business judgment rule does not constitute an absolute defense for directors; however, it Corporate Governance: What Every Bank Director Must Know About the Author Michael J. Messaglia, a partner with Krieg DeVault LLP, Indianapolis, serves on the firm’s executive committee and formerly chaired the financial institutions practice. His areas of practice include financial institutions, general corporate matters, joint ventures, mergers and acquisitions, and taxation. Messaglia has been elected to “Indiana Super Lawyers” years 2007-16, was named to the Indianapolis Business Journal “Forty Under Forty” list and was recognized by Chambers USA as a Leader in the Field of Corporate Mergers and Acquisitions. He earned a bachelor’s degree from the University of Notre Dame and a JD from the University of Notre Dame Law School. The author can be reached at 317-238-6249, email: mmessaglia@kdlegal.com. Krieg DeVault LLP is a Diamond Associate Member of the Indiana Bankers Association and author of the IBA’s Compliance Connection column in Hoosier Banker magazine.
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