A public company’s board of directors typically consists of three board-level committees—the audit committee, the compensation committee, and the nominating and governance committee. The nominating and governance committee is typically tasked with advising and making recommendations on board director practices and leading the search for qualified directors.

The decisions made by the nominating and governance committee are typically protected by the business judgment rule, a Delaware case-law derived doctrine. It is among the most important standards of judicial review in corporate law. The business judgment rule establishes a presumption in favor of a company’s directors for business decisions. It is intended to protect directors and management from liability for making good faith decisions that they believed at the time were in the best interests of the company. This assessment is made based on a reasonably prudent person standard.

The primary fiduciary responsibilities of directors are the duty of care and the duty of loyalty. The members of the nominating and governance committee are subject to the same fiduciary duties as committee members as they are as board members.

The duty of care entails a commitment to making informed business judgments. It obligates directors to give the same care and concern to their nominating and governance committee responsibilities as would a reasonable person. As established by the seminal Delaware business law case Smith v. Van Gorkom, a plaintiff bringing a claim that a director breached their duty of care must demonstrate that the director acted with gross negligence.

The duty of loyalty mandates that directors consider the best interests of the company and its shareholders above their personal interests. Members of the nominating and governance committee must act in a disinterested and independent manner when making decisions.

The duty of oversight requires directors to make a good faith effort to ensure that the company has proper mechanisms in place to report wrongdoing. The important Delaware case In re Caremark defines the boundaries of the oversight duties of directors. In Caremark, the court rejected the plaintiff’s claims that the company’s directors breached their fiduciary duties by failing to put in place proper internal control systems. The lack of internal monitoring led to certain employees committing criminal offenses.

The principles established by the Caremark case were reaffirmed in the 2009 Delaware case In re Citigroup. In this case, the court dismissed the claims of a group of Citigroup shareholders. The shareholder plaintiffs claimed that the bank’s directors breached their fiduciary duties by ignoring red flags suggestive of corporate wrongdoing, including a failure to monitor risks associated with subprime mortgages. The Delaware court emphasized that the duty of oversight is not intended to subject directors to personal liability for failing to properly predict business risks.

Directors and committee members are also protected under Delaware law for their good faith reliance on experts. Consultation with experts selected with reasonable care can also help satisfy the directors’ duty of care.

It has become increasingly common for a company’s certificate of incorporation to contain a provision that limits the personal liability of a company’s directors for breaches of their fiduciary duties. The company may indemnify a director for expenses incurred in an action against the director, assuming that the director did not have reason to believe the conduct was illegal.