Why do corporate laws require that directors explicitly dissent from objectionable board decisions?
When a director faces a board decision regarding an objectionable or even illegal matter, he or she cannot escape personal liability for the corporate action unless the director records his or her dissent, either at the time of the vote or within a short period thereafter. The director’s pursuit of legal protection through this procedure serves multiple purposes. The dissenting director will not be liable for any legal problems arising from the vote; Other directors may rethink a questionable position or action; and Shareholders who examine the voting record receive notice of potential problems. The law uses this requirement to push directors to state their misgivings, with the hope that their dissent will guide their corporations toward better business practices, avoid damaging third parties, and reduce the number of lawsuits. Directors must stay abreast of the board’s activities, and should be prepared to dissent to actions that may implicate them personally.
