The business judgment rule requires members of the board of directors to exercise ordinary and reasonable care in performing their duties to an association. This rule seeks to strike a balance between potential overdelegation on the one hand, and completely concentrated power on the other. Under the business judgment rule, a board member will not be held personally liable for her actions that, although harmful to the association, were accomplished through the exercise of reasonable care.
Board members must carefully supervise individuals with whom the board has delegated authority. Board members are often found to be in conflict with the business judgment rule when they depend too much on association managers or other employees. An association’s declaration may limit the board’s authority to delegate by stipulating the duties that are and are not delegable and which board members have the power to delegate.
It is also essential for board members to act with good faith, diligence, care and skill in exercising her duties. Board members are held to the standard of a reasonable prudent person in similar circumstances.
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Authors: Ryan McCabe