How is this case different from Van Gorkom? They weren’t selling the company here and – they were better informed. Good - X Identified two possible bases for finding that directors acted in bad faith: Conduct motivated by subjective bad faith (i.e., an actual intent to do harm) dereliction of duty, a conscious disregard for one’s responsibilities” “Intentional Gross negligence bad faith ≠ Gave examples of conduct in bad intentionally acting with a purpose other than advancing the best interests of the corporation, intent to violate the law, intentionally failing to act in the face of a known duty to act, demonstrating a conscious disregard for duties. The declined to decide whether there is a distinct fiduciary duty to act in good faith independent of the duties of loyalty and care. Corporate Waste - X Conduct was not even to the standard: one sided that no business person of “So ordinary, sound judgment could conclude that the corporation has received adequate consideration.” This is the classic formulation of the test Caremark Claims: In dicta, the court stated that as part of its duty to monitor, the Board must make good faith efforts to ensure that a corporation has adequate reporting and information systems: director’s obligation includes a duty to attempt in good to assure that a corporate information and “A … reporting systems exists, and that failure to do so in theory at least, render a director liable for … …may, losses caused by non-compliance with legal standards.” The opinion described this claim as difficult to win, with liability attaching only for sustained or systematic “a failure to exercise oversight” or utter failure to attempt to ensure a reporting and information system.” “[a]n Although a number of Caremark-type claims have been filed, decisions finding a violation are rare. Most companies now have compliance programs and control systems. What Might an Law Compliance Program Include? “Adequate” Policy manual Training of employees Compliance audits Sanctions for violation Provisions for self-reporting of violations to regulators controls to verify compliance with laws and to give the board the ability to monitor the business In Stone v. Ritter, the Del. Supreme Court addressed Caremark’s validity and clarified good faith and how it fits into the fiduciary duty framework. Caremark Claim: hold that Caremark articulates the necessary conditions predicate for director oversight “We liability: (a) the directors utterly failed to implement any reporting or information system or controls; or
How is this case different from Van Gorkom? – They weren’t selling the company here and they were better informed. Good - X Identified two possible bases for finding that directors acted in bad faith: Conduct motivated by subjective bad faith (i.e., an actual intent to do harm) “Intentional dereliction of duty, a conscious disregard for one’s responsibilities” Gross negligence ≠ bad faith Gave examples of conduct in bad intentionally acting with a purpose other than advancing the best interests of the corporation, intent to violate the law, intentionally failing to act in the face of a known duty to act, demonstrating a conscious disregard for duties. The declined to decide whether there is a distinct fiduciary duty to act in good faith independent of the duties of loyalty and care. Corporate Waste - X Conduct was not even to the standard: “So one sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration.” This is the classic formulation of the test Caremark Claims: In dicta, the court stated that as part of its duty to monitor, the Board must make good faith efforts to ensure that a corporation has adequate reporting and information systems: “A director’s obligation includes a duty … to attempt in good to assure that a corporate information and reporting systems … exists, and that failure to do so …may, in theory at least, render a director liable for losses caused by non-compliance with legal standards.” The opinion described this claim as difficult to win, with liability attaching only for “a sustained or systematic failure to exercise oversight” or “[a]n utter failure to attempt to ensure a reporting and information system.” Although a number of Caremark-type claims have been filed, decisions finding a violation are rare. Most companies now have compliance programs and control systems. What Might an “Adequate” Law Compliance Program Include? Policy manual Training of employees Compliance audits Sanctions for violation Provisions for self-reporting of violations to regulators controls to verify compliance with laws and to give the board the ability to monitor the business In Stone v. Ritter, the Del. Supreme Court addressed Caremark’s validity and clarified good faith and how it fits into the fiduciary duty framework. Caremark Claim: “We hold that Caremark articulates the necessary conditions predicate for director oversight liability: (a) the directors utterly failed to implement any reporting or information system or controls; or
Business-Associations-Pollman-20152.docx