Boards should recognize that different states of incorporation may require different processes by which shareholders can bring derivative actions against directors and officers.
Conducting and demonstrating a fair and reasonable process in the best interest of the company should be the goal of the board.
Directors should be knowledgeable about who (e.g., which directors) can be involved in the decision-making related to a derivative action based on how the law in state of incorporation may define “independence” in such matters.
Responses to such actions should always be done with the advice of qualified and experienced legal counsel to protect both the board from liability by ensuring the business judgment rule is properly considered, shareholder demands are properly investigated, complexities and conflicts of interest are managed, and appropriate communications are made throughout the process.
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