Tag: HLS Corporate Governance Blog

Imposing Caremark Fiduciary Duty on Corporate Officers

I previously posted on the Midland Grange case [Delaware Imposing Same Fiduciary Duty on Officers as Directors] where the Delaware Chancery Court imposed the same obligations on officers as directors, including the duty of loyalty and the duty of care.

In Miller v. McDonald, et al., ( D. Del., Bankr., April 9, 2008), the Bankruptcy Court for the District of Delaware ruled on corporate governance issues related to the fiduciary duties of officers and directors. The Bankruptcy Court denied a motion to dismiss in the course of ruling that Caremark duties would be imposed on an officer (who was not a director), that was on the management team when the President of the company committed fraud and other actions and omissions that ultimately led to the bankruptcy filing of the company.

It is correct that Delaware law does not impose fiduciary duty on “employees” generally, but it is incorrect that it does not impose failure of oversight (fiduciary duty) as to officers. . . . While it is true that all of the cases relied upon by the Trustee involved directors’ conduct, not officers’, I believe the Caremark decision itself suggests that the same test would be applicable to officers.

The corporate entity in Miller v. McDonald is a Florida corporation, so the court is exporting this concept of similar duties between officers and directors from Delaware to Florida.

Thus, it is clear that under both Delaware and Florida law both officers and directors owe fiduciary duties to the corporation.

Thanks to the Harvard Law School Corporate Governance Blog and Francis G.X. Pileggi of Fox Rothschild LLP and the Delaware Corporate and Commercial Litigation Blog for pointing out this case: Court Imposes Caremark Fiduciary Duty on Corporate Officer.

Sovereign Wealth Funds Adopt Voluntary Best Practices

Adam O. Emmerich of Wachtell Lipton Rosen & Katz put together a summary published on The Harvard Law School Corporate Governance Blog on the Santiago Principles and the potential impact of these on investments by sovereign wealth funds: Sovereign Wealth Funds Adopt Voluntary Best Practices.

Intended to demonstrate that SWFs are soundly established and that investment decisions will be made on an economic and financial basis, the Santiago Principles address three broad areas of concern regarding SWFs: (i) their legal structure and relationship with the state, policy and investment objectives, and degree of coordination with their sovereign’s macroeconomic policies; (ii) their institutional structure and governance mechanisms; and (iii) their investment and risk management framework. While much will turn on how SWFs actually implement these aspirational guidelines (and it is worth noting that all of the principles are well caveated and subject to home country laws, regulations, requirements and obligations), the Santiago Principles may help reduce political influence in SWF investing and encourage the flow of sovereign wealth across borders.

Key Principles for Strengthening Corporate Governance

Holly Gregory of  Weil, Gotshal & Manges LLP posted on The Harvard Law School Corporate Governance Blog about the release of Key Agreed Principles for Strengthening Corporate Governance by The National Association of Corporate Directors, with the support of the Business Roundtable.

The Principles identify the core areas that boards, management and shareholders agree should be the basis for good corporate governance and cover topics including independent board leadership, protecting against entrenchment of the board, shareholder participation in corporate decision making, and board communication with shareholders. In recognition of the legitimate concerns that exist about the rigid and prescriptive use of best practice recommendations by some proponents, the Principles are intended to reflect a distillation and articulation of fundamental principles-based aspects of governance on which there appears to be broad consensus. They are also intended to stimulate informed debate about issues on which consensus does not yet exist.