The Caremark case set a very high bar for holding directors personally liable for failing to properly oversee their company’s affairs. Cases alleging that boards have breached their oversight duty in the wake of a wide range of “corporate traumas” — and even tragedies — generally have not survived motions to dismiss. As boards refresh their oversight agendas for 2020, there are useful lessons to be drawn from two decisions of the Delaware courts issued earlier this year that allowed Caremark claims to proceed beyond the motion-to-dismiss stage. Against the backdrop of growing investor demand for board oversight of environmental, social, and governance (ESG) related risks and a widening vision of “corporate purpose,” these decisions highlight once again how important it is for boards to
- take a fresh look at identifying their company’s “mission critical” risks;
- ensure the company’s reporting system elevates information about these risks not only to management but also to the board itself in a timely, actionable way;
- document how the board pays attention to these risks; and
- respond appropriately as a board when the reporting system raises red flags.
*Published as a part of a full report by NACD.