Andrew Ditchfield discusses Delaware court’s recent decision on duty of oversight in Compliance Week
Davis Polk partner Andrew Ditchfield was quoted in Compliance Week discussing the Delaware Court of Chancery’s recent ruling in In re McDonald’s Corporation Stockholder Derivative Litigation. “At a high level, although described as a clarification of Delaware law, the decision for the first time since Caremark was decided in 1996 applies a duty of oversight at the officer level, instead of at the board level,” said Andrew.
The decision should not change officers’ fiduciary obligations of the duty of care and duty of loyalty that have always existed, Andrew said. “Officers are looking to execute on those duties in good faith, so whether another court adopts the [Chancery Court’s] oversight liability line of thinking, I’m not sure that should change the way in which chief compliance officers go about their jobs,” Andrew continued. “It may impact how they feel about the potential for personal liability, but my general experience is that most people aren’t making decisions with personal liability in mind.”
Andrew noted that CCOs will want to ensure systems of oversight are in place that provide for sufficient lines of communication to report issues. Those that report to the CCO should have an obligation to report red flags, “and CCOs should be responsive to the issues being raised to them,” he said. For many companies, “those measures are already going to be quite adequate.”
“Experts: Delaware court McDonald’s ruling lowers bar on officer liability,” Compliance Week (March 10, 2023) (subscription required)