Even venture capitalists who sit on boards where they have significant investments often forget this point. They write into their investment documents that they will occupy a seat on the board for as long as they are invested in the company, thinking of this as a protection for their investment and tool for them to influence growth.
Actually, there are two legal duties of board members. They are: the duty of care, and the duty of loyalty. Everything else is a self-imposed duty or responsibility. The duty of care is to care for the corporation asset itself, not the shareholders whom they represent. Each corporation when chartered becomes a live person in the eyes of the law, independent and subject to the care of its board of directors. Shareholders such as the investors are granted few rights by law. They can elect directors for their class of stock, approve mergers and acquisitions; approve increases or changes to the capital structure of the company and other more minor actions.
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Author: Dave Berkus
