Landmark decision in corporate governance.
In re Caremark Int’l, is a landmark decision in corporate governance. Lawsuits alleging a failure of corporate oversight under this legal precedent are often referred to as Caremark claims. In Caremark, the court held that “an utter failure to attempt to assure a reasonable information and reporting system exits” constitutes a breach of duty. Stephen Bainbridge, in the assigned article, addresses whether shareholders could bring suit against “boards of directors of companies with lax risk management programs?” In your thread, discuss the fiduciary compliance duties that Chancellor Allen articulated in Caremark. Then, discuss the merits of Enterprise Risk Management and whether Caremark liability extends to risk management.
Sample Answer
Fiduciary Duties in Caremark and Enterprise Risk Management (ERM)
The Delaware Court of Chancery’s decision in In re Caremark International Inc. Derivative Litigation established a significant precedent for corporate oversight and director liability. Let’s delve into the key points:
Fiduciary Duties in Caremark:
Chancellor Allen outlined two primary fiduciary duties for directors in Caremark:
- Duty of Loyalty: This duty requires directors to act in the best interests of the corporation and its shareholders.
- Duty of Care: This duty necessitates that directors exercise reasonable care in overseeing the company’s affairs.