242 Planning and Forecasting
corporation. At the very least, the director must keep informed regarding the
corporation’s operations, although he or she may in most circumstances rely on
the input of experts hired by the corporation, such as its attorneys and accoun-
tants. Thus, when the widow of a corporation’s founder accepted a seat on the
board as a symbolic gesture of respect to her late husband, she found herself li-
able to minority stockholders for the misbehavior of her fellow board members.
Nonparticipation in the misdeeds was not enough to exempt her from liability;
she had failed to keep herself informed and exercise independent judgment.
Directors may also find themselves sued personally by minority stock-
holders or creditors of the corporation for declaration of dividends or other
distributions to stockholders that render the corporation insolvent or for other
decisions of the board that have injured the corporation. Notwithstanding such
lawsuits, however, directors are not guarantors of the success of the corpora-
tion’s endeavors; they are required only to have used their best independent
“business judgment” in making their decisions. When individual directors can-
not be totally disinterested (such as the corporate opportunity issue or when
the corporation is being asked to contract with a director or an entity in which
a director has an interest), the interested director is required to disclose her or
his interest and is disqualified from voting. In many states, the director ’s pres-
ence will not even count for the maintenance of a quorum.
Apart from the question of the interested director, much of the modern
debate on the role of the corporate director has focused around which con-
stituencies a director may take into account when exercising his or her best
business judgment. The traditional view has been that the director ’s only con-
cern is to maximize return on the investment of the stockholders. More re-
cently, especially in the context of hostile takeovers, directors have been
allowed to take into account the effect of their decisions on other constituen-
cies, such as suppliers, neighboring communities, customers, and employees.
In an early case on this subject, the board of directors of the corporation
which owned Wrigley Field and the Chicago Cubs baseball team was judged to
have appropriately considered the effect on its neighbors and on the game of
baseball in voting to forgo the extra revenue that it would probably have earned
if it had installed lights for night games.
When the stockholders believe the directors have not been exercising
their best independent business judgment in a particular instance, the normal
procedure is to make a demand on the directors to correct the decision either
by reversing it or by reimbursing the corporation from their personal funds.
Should the board refuse (as it most likely will), the stockholders then bring a
derivative suit against the board on behalf of the corporation. They are, in ef-
fect, taking over the board’s authority to decide whether such a suit should be
brought in the corporation’s name. The board’s vote not to institute the suit is
not likely to be upheld on the basis of the business judgment rule, since the
board members are clearly interested in the outcome of the vote. As a result,
the well-informed board will delegate the power to make such a decision to an
independent litigation committee, usually composed of directors who were not