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July 13, 2023

Corporate Governance: Helping Your Officers Fulfill Their Vital Role

Earlier this year, the Delaware Chancery Court allowed a claim to proceed against an officer that was premised on alleged oversight failures that caused a breach of their duty of loyalty. This is a big deal because it’s the first time the court has applied Caremark duties to an officer.

This Sidley memo suggests action items for companies & officers to ensure that those individuals are aware of their duties – as agents & as fiduciaries – so that they are getting info to the board that allows directors to perform their own roles effectively, and also so that the officers aren’t acting (or failing to act) in a way that could result in personal liability. Here are the suggested action items for companies:

– Consider providing officer training covering officer fiduciary duties and officer responsibilities as agents of the corporation.

– Include real-world scenarios and Q&As to help officers understand their duties in practice.

– Ensure officers know when and how to report up regarding “red flags.”

– Because officers’ duty of oversight is context-driven, ensure that roles and responsibilities are clearly defined and understood, both by the board and by management.

– Consider whether the processes for developing board materials is sufficiently robust to cover major areas of potential risk and which officers should regularly report to the board.

– Ensure that board materials and minutes reflect that the board has been informed of potential risks, how they are addressed and which officers are responsible.

– If permitted under applicable law (as in Delaware since 2022), consider amending the corporate charter to provide for officer exculpation.

Liz Dunshee

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