When I do governance training I talk a lot about the duty of care.
The test of whether the duty of care has been met is often explained by asking the question “What would a reasonable person do?” (In fact the term is often “reasonable man” but I digress.)
If a reasonable person would have done what your board has done, then your board is not considered to be negligent.
We generally only see examples about this discussion, there are no clear guidelines. The definition of negligence is a lack of due care, also known as diligence. The definition of due diligence is the avoidance of negligence. A circular discussion. Will you know it when you see it?
Here is an example – when I attended university we were allowed to smoke in class. In fact a high percentage of our professors also smoked, in class. This was considered to be reasonable behavior at the time. Now in hindsight – smoking in a public place is not considered to be reasonable and in fact, is generally illegal. Does that make the behavior way back when negligent? I would say no – but it is hard for people to take into account the way things were in the past, we judge issues through today’s lenses.
This concept of hindsight should be a concern of board members. When you are making a decision remember that you may not be judged immediately, it could be a few years before the decisions the board makes result in events taking place. Once something has happened and the result is not good – then someone wonders if you were negligent.