When directors perform their corporate responsibilities, the duty of care requires them to exercise the care that an ordinary prudent person would exercise in the management of his or her own affairs under similar circumstances. To be able to invoke the protections of the business judgment rule, directors must make informed business decisions. This requires them to consider all material information that is reasonably available to them, not facts that are immaterial or "out of their reach."

As part of the duty of care, a director is expected to know the corporation's financial condition. Most corporation statutes provide that a director has the right to inspect all corporate books and records and to receive copies of all minutes of board and committee meetings. Diligent directors avail themselves of all information to which they are entitled and any other readily available information that will aid them in carrying out their duties and responsibilities to the corporation and the shareholders. Indeed, directors are presumed to know what is contained in the corporate books and records. Diligence also necessitates that directors keep themselves reasonably apprised of all developments that could directly (or sometimes indirectly) affect the corporate welfare.

The corporation statutes generally allow directors (either outside or inside) to rely in good faith on the corporate records when performing their director duties and responsibilities. The Delaware corporation statute, for example, provides that a member of the board of directors or a committee appointed by the board is "fully protected in relying in good faith upon the records of the corporation." Under Delaware law, a director can be held liable for unlawfully paying dividends or unlawfully making stock purchases or redemptions. When the director relies in good faith upon the records of the corporation as to the value and amount of corporate assets, liabilities, and/or net profits of the corporation in making decisions to pay dividends or to purchase or redeem stock, the director (or committee members), the director is protected from liability.

Some states protect only outside directors who are not involved in the corporation's day-to-day activities when they rely in good faith on corporate books and records. The protection does not extend to inside directors who have more in-depth knowledge of the corporation's activities.

Directors are not expected to be accountants or bookkeepers, but their failure to inspect the corporate books and records and to maintain some reasonably familiarity with the information contained therein can be grounds for personal liability. As with criminal law, ignorance is typically not a successful defense against a claim for breach of the duty of care and diligence.

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