Define: Standard of Conduct
In a contract, Standard of Conduct is the benchmark used to judge whether a director, officer, employee, or other covered person acted properly, typically requiring good faith, honesty, and actions reasonably believed to serve the organization's best interests without knowingly breaking the law. It usually appears in indemnification and liability provisions to determine eligibility for protection.
Legal accuracy standard set & glossary spot-checked by Imad Mohammed Nazar , Skadden-trained M&A lawyer, Legal Engineer at GenieAI
What Standard of Conduct Means in a Contract
A Standard of Conduct clause sets out the behavioral yardstick that a person, usually a director, officer, employee, or agent, must meet in order to be treated as having acted properly under an agreement. It is most commonly tied to indemnification provisions, where the organization agrees to cover legal costs or losses only if the covered person met this standard. The core elements typically require that the person acted in good faith, reasonably believed their conduct was in, or not opposed to, the best interests of the organization, and, in criminal contexts, had no reasonable cause to believe the conduct was unlawful.
This concept functions as a gatekeeper. It does not guarantee protection or payment; it simply defines the threshold that must be crossed before other contractual promises, such as indemnification or reimbursement, become operative. Because it is a threshold test, the wording chosen for the standard has outsized influence on how disputes are resolved later.
The clause is often found alongside broader governance language, and organizations frequently mirror it in an internal Relevant Circumstances
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