What should directors do when their company ignores their efforts to end corporate mismanagement? Until recently, this question rarely came up. Rogue companies are rare in the sense of openly refusing to comply with the law. Directors almost always were able to obtain corrective action when violations of the law came to light. But what if those directors were not able to cure serious management problems? What should they do?
This is not just a hypothetical question. In just the last three months, two Delaware Court of Chancery decisions suggested that directors who resigned in protest over the failure to take corrective action at their companies might well still be held liable for corporate wrongdoing. Their resignation did not immunize them. That is no big surprise. But what was a surprise was the court’s questioning of whether the very act of resigning was itself a dereliction of the directors’ duty to stockholders and if it might make them liable for wrongdoing that occurred even after they resigned.
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