The Delaware Court of Chancery recently held, in a shareholder derivative case, that the officers could be liable for a breach of the duty of oversight, formally expanding a duty applied to directors. In the case, the Court was confronted with allegations that a senior officer ignored red flags about a culture of workplace harassment, allegedly by engaging in such conduct directly. The Court explained that the duty of oversight was part of the duty of loyalty, and therefore a showing of bad faith would be required for liability.
This decision is not only critical for Delaware entities, but officers of entities across the country. Courts in other jurisdictions often follow Delaware law on governance and corporate matters, and it is anticipated that litigants will use this case to argue that the duty exists in other jurisdictions.
If you have a question about fiduciary duties of corporate officers or directors, contact Michael Haeberle at firstname.lastname@example.org.