AstroStar Inc.'s board of directors consists of three members-Eckhart, Dolan, and Macero. At a regular board meeting, the board selects Galiard as president of the corporation. Later, an audit reveals that during his term as president he has openly embezzled $500,000 from AstroStar. The same audit reveals that the board knew when it selected Galiard that he had been previously convicted of embezzlement. Can the corporation hold directors Eckhart, Dolan, and Macero personally liable?

Directors are personally answerable to the corporation for breach of their duty to exercise reasonable care in conducting the affairs of the corporation. Reasonable care is defined as being the degree of care that a reasonably prudent person would use in the conduct of personal business affairs. When directors delegate the running of the corporate affairs to officers, the directors are expected to use reasonable care in the selection and supervision of such officers. Failure to do so will make the directors liable for negligence or mismanagement.
The questions in the case of AstroStar, Inc., are whether the directors failed to use reasonable care in the selection of the president and whether they failed to provide a reasonable amount of supervision during his term. Analyze of the selected officer's previous conviction for embezzlement and that officer's open embezzlement of corporate funds indicates failure on both issues. Thus the directors can be held personally liable.