25 Hoosier Banker November 2016 places the burden on the objecting party to prove that a director failed to meet the standard of conduct. Indiana has codified the business judgment rule and provides that directors discharge their duties “(1) in good faith; (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) in a manner the director believes to be in the best interests of the corporation.” Further, a director will not be liable, unless the failure to meet this standard of conduct constitutes willful misconduct or recklessness. Under the “internal affairs doctrine,” this standard of conduct will be applied to directors of national banks and federal savings associations headquartered in Indiana, in addition to directors of Indiana corporations and statechartered banks. The liability threshold for directors in Indiana is much more favorable to them when compared to other jurisdictions, which have a lower threshold for liability such as negligence or gross negligence. The Indiana Supreme Court noted that “Indiana has statutorily implemented a strongly pro-management version of the business judgment rule.” Certain legal requirements of directors may impose liability upon directors regardless of the business judgment rule. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 allows the Federal Deposit Insurance Corp. to pursue officers and directors of failed banks for gross negligence. Further, directors may be held liable or receive civil money penalties for violations of law, including legal lending limits, Regulation O, reporting requirements, and safety and soundness. “Know your responsibilities.” Responsibilities of directors derive from their duties and facilitate the fulfillment of those duties. These responsibilities, as identified by the Office of the Comptroller of the Currency and the FDIC, require a director to: • Maintain independence in evaluating management’s actions and competence. Critical evaluation of issues before the board is essential. • Keep informed by regularly attending board and assigned committee meetings and staying abreast of general industry trends and regulatory developments. Directors should carefully review board packets, regulatory communications including examination reports, auditor’s finding and recommendations and Guiding Indiana Community Banks Since 1978 Kent, OH • Phoenix, AZ Strategic Planning Capital Planning Liquidity Planning Regulatory Assistance Stock Valuations Capital Markets Internal Audit Information Technology Recruitment & Human Resources Lending & Loan Review Regulatory Compliance Policy Development Young & Associates, Inc. Consultants to the Financial Industry 35 YEARS 1978 - 2016 + publicly disclosed shareholder communications. • Ensure qualified management through evaluation of the CEO and senior management, and addressing any issues promptly. • Supervise management through independent reviews ‒ either through independent, third-party review, or an internal auditor reporting directly to the board. • Observe all banking laws by ensuring policies covering all significant Continued on page 26.
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