Court of Chancery Rules That Corporate Officers Have a Duty of Oversight Within Their Corporate Area of Responsibility
While the Stone v. Ritter decision only recognized the oversight duties of directors, three years later, the Delaware Supreme Court ruled that "the fiduciary duties of officers are the same as those of directors." See Gantler v. Stephens, 965 A.2d 695, 709 (Del. 2009).
February 08, 2023 at 09:00 AM
6 minute read
ContributorsDelaware courts have firmly established that directors have oversight duties under the good-faith component of the fiduciary duty of loyalty. In the seminal Caremark decision, the Delaware Court of Chancery held that directors have an oversight duty to ensure that "information and reporting systems exist in the organization that are reasonably designed to provide to senior management and to the board itself timely, accurate information sufficient to allow management and the board, each within its scope, to reach informed judgments concerning the corporation's compliance with the law and business performance." See In re Caremark International Derivative Litigation, 698 A.2d 959, 970 (Del. Ch. 1996). The court explained that a breach of a director's oversight duty necessary to demonstrate a lack of good faith requires a "sustained or systematic failure of the board to exercise oversight—such as an utter failure to attempt to assure a reasonable information and reporting system exists … ." Ten years later, in Stone v. Ritter, the Delaware Supreme Court recognized two types of Caremark oversight claims against directors: "(a) the directors utterly failed to implement any reporting or information system or controls; [or] (b) having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention." 911 A.2d 362, 370 (Del. 2006). While the Stone v. Ritter decision only recognized the oversight duties of directors, three years later, the Delaware Supreme Court ruled that "the fiduciary duties of officers are the same as those of directors." See Gantler v. Stephens, 965 A.2d 695, 709 (Del. 2009).
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