Legal Blogs

Corporate Directors’ Fiduciary Duty to Monitor – Failure to Comply Could Result in Personal Liability


Corporate directors should be aware of recent developments in Delaware corporations’ law. Directors of businesses that operate in California, but which are incorporated in Delaware, may have a fiduciary duty to monitor the corporation for any violations of law. Failure to do so could result in personal liability.

Director Fiduciary Duty to Monitor

Corporate Directors have a Fiduciary Duty to Monitor

What are Fiduciary Duties?

Officers and directors of a corporation owe fiduciary duties to the corporation including a duty of care, and a duty of loyalty. The duty of care requires fiduciaries to act in an informed manner. It requires fiduciaries to review all relevant information reasonably available to them before making company decisions. The duty of loyalty requires fiduciaries to act in a disinterested manner, in good faith, and to avoid self-dealing or actions that would benefit themselves at the corporation’s expense.

The Duty to Monitor

Delaware Courts have recently recognized that as part of their fiduciary duties, directors owe their corporation a “duty to monitor.” The duty to monitor requires directors to monitor the corporation’s compliance with laws, standards and internal protocols. Directors can be held personally liable for breaching the duty to monitor if: (1) they knew or should have known that the corporation was violating the law, (2) they took no steps in good faith to prevent or remedy the situation, and (3) their failure to monitor caused harm to the plaintiff.

The Internal Affairs Doctrine

California has not imposed a duty to monitor on corporate directors. However, Delaware corporations that operate in California may be bound by Delaware law on the issue.

Under the “internal affairs doctrine,” the internal affairs of a corporation are governed by the laws of the state in which it was incorporated. (See Cal. Corp. Code § 2116). Some examples of conduct falling within the internal affairs doctrine includes:

  • the election or appointment of directors and officers;
  • the adoption of by-laws;
  • the issuance of shares;
  • methods of voting including any requirements for cumulative voting; and
  • shareholders rights to examine corporate records.

The internal affairs doctrine is limited to matters that are peculiar to the relationships among or between the corporation and its officers, directors and shareholders. Other matters such as the making of contracts, the commission of torts, the transfer of property any other issues where California has a “more significant relationship” to the corporation will be governed by local California Law.

Best Practice

Corporate boards of directors should implement comprehensive compliance procedures to assist them in monitoring the corporation. When a potential violation is discovered, directors should take action quickly to bring the corporation in compliance with the law.

Getting Legal Help

Brown & Charbonneau, LLP represents individuals as well as large and small companies in cases involving all forms of business disputes. If you are involved in a business dispute, or would like to learn about your rights and how to protect them, we can provide you with the information you need. Contact us or call today at 714-505-3000 to schedule a consultation and learn more about how we can help you.

For the latest legal news, follow Brown & Charbonneau, LLP on Twitter and join us on FacebookInstagram, and LinkedIn.

Brown & Charbonneau, LLP is a top-rated business litigation, corporate, real estate and family law firm in Irvine, California. We are honored to be named by Best’s Lawyers® as one of the Top Law Firms in the US, including the specialty area of commercial litigation. As an AV-rated law firm, we are proud of our 10.0 Superb Client Rating from Avvo. Our top-reviewed Southern California attorneys have also earned specializations from the State Bar of California, as Certified Trial Specialists, and are included amongst the elite attorneys to be named Super Lawyers®.

Should you have any other issues involving any of the below areas of practice, please feel free to contact us.

Our website is full of valuable information and resources.  Our goal is to provide as much information as possible to assist all our clients in making fully informed decisions.  Just click any area of interest.

Brown & Charbonneau, LLP publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.