On January 25, 2023, the Delaware Court of Chancery held, for the first time, that the rationale for a duty of oversight (Caremark duty) owed by directors of Delaware corporations applies equally, if not to a greater degree, to officers. In re McDonald’s Corp. Stockholder Derivative Litigation, C.A. No. 2021-0324-JTL (Del. Ch. Jan. 25, 2023).
However, this officer duty of oversight will be more context-driven than the duty owed by directors. Some officers, like a chief executive officer or a chief compliance officer, will have company-wide oversight duties while other officers with more constrained areas of responsibility will have a more constrained duty of oversight (i.e., establishing information reporting systems and upward reporting of red flags will be based on the particular officer’s responsibilities and authority). Additionally, as with a director’s duty of oversight, oversight liability for officers will require a showing of bad faith, meaning a plaintiff will need to establish that the officer consciously failed to make a good faith effort to establish information reporting systems or consciously ignored red flags.