Director Oversight Duty Claims
As derivative plaintiffs continue to seek to expand what constitutes mission critical corporate risk, these decisions provide practical guidance on how courts will: (i) identify the key compliance risks a company's business presents, and (ii) evaluate whether a particular company has implemented reasonable board-level monitoring and reporting procedures.
October 07, 2020 at 01:52 PM
21 minute read
The Delaware Supreme Court's decision last year in Marchand v. Barnhill, 212 A.3d 805 (Del. 2019), reversing the dismissal of a so-called Caremark claim challenging a board of directors' performance of its duty to oversee company operations, attracted significant commentary because courts traditionally characterized the Caremark claim as possibly the most difficult in corporation law to plead and prove. Directors and their advisers scrutinized Marchand to assess whether it signaled a change in how Delaware courts will evaluate Caremark claims, or whether it only reinforced Caremark in the context of stark factual allegations. While Marchand made clear that failure of oversight claims are no "chimera," it left open important questions, including defining the "mission critical" compliance risks that a board must oversee and monitor. A year later, a meaningful number of Delaware Court of Chancery decisions have interpreted Marchand, with mixed results for directors. As derivative plaintiffs continue to seek to expand what constitutes mission critical corporate risk, these decisions provide practical guidance on how courts will: (i) identify the key compliance risks a company's business presents, and (ii) evaluate whether a particular company has implemented reasonable board-level monitoring and reporting procedures.
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