Director Liability and the Audit Committee

by Carl Bellas, David Klock



Today's corporate director must be concerned with his or her vulnerability to a wide range of legal assaults as suits are increasingly brought against directors for failure to exercise their duties in a responsible manner. Thus, to reduce their vulnerability to legal attack, directors must improve their performance. To improve, they must have access to complete and reliable corporate information and be able to conduct independent inquiry into the quality of the information they receive. Given the complexity of corporate information and the time constraints, most corporations have formed board committees to deal with specific topics in detail and report their findings to the full board. One of these is the audit committee, which is designed to select and work with independent auditors, thereby providing a mechanism for a more effective audit function by the board. The audit committee is a very flexible device for any board of directors. It can satisfy the directors need to establish lines of communication with external observers of the firm.

California Management Review

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