Section 5210 of the California Corporations Code (the "Code") permits the board to delegate management of corporate activities. Indeed, boards generally delegate management of the day-to-day operations of a corporation to the corporate officers and management staff. However, while the board may delegate management of the corporation, it may not delegate its oversight responsibility nor its function to govern. Among the activities involved in adequate oversight:
- Prudent selection of officers and management staff.
- Selective and clearly defined delegations of authority.
- Adoption of monitoring policies and procedures to ensure legal compliance and prudent use of organizational resources.
Except as provided in Section 5233 of the Code (governing self-dealing transactions), a director who performs his or her duties in accordance with the standard of care as described in Section 5231(a) and (b) of the Code "shall have no liability based upon any alleged failure to discharge the person’s obligations as a director." Code Section 5231(c). This provision is known as the business judgment rule and is based on the rationale that it would be improper for courts to second-guess corporate management decisions made in good faith and due care.