Your Risks as a Board Member

Just before Christmas last year I received a frantic phone call from my Aunt Caroline, who told me that she had been named a defendant in a lawsuit. Aunt Caroline is 86 years old and until 1991 served as one of three members of the board of our family business, a $40 million mail-order distributor of supplies for biological education in Burlington, North Carolina. The corporation's attorney had called my aunt to notify her that she was being sued, along with the other two board members, by a dissident shareholder.

Unfortunately, she had become caught in a crossfire between my older brother, Edward, the president of the company and owner of 68 percent of the stock, and my younger brother, Bill, who is not active in the business but owns 13 percent. After a long history of profitable years, the company founded by our father suffered a modest loss in 1992. Bill's suit sought damages, charging that Edward had mismanaged the company while benefiting from an overly generous compensation package. Since Bill was suing on behalf of the corporation—an action known as a shareholder's derivative suit—the attorney for the corporation told my aunt that he could not represent her.

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