Caremark's Butterfly Effect

Document Type

Article

Publication Title

American University Law Review

Journal Abbreviation

Am. U. L. Rev.

Abstract

In 1996, the Delaware Chancery Court detailed the minimum standard for corporate boards with regards to corporate compliance programs and monitoring protocols. The landmark Caremark decision held that directors would not face liability for a breach of fiduciary duties unless they failed to implement a system of controls and compliance, or knowingly failed to monitor that system. In order to bring a successful Caremark claim, plaintiffs must prove that the board operated in bad faith by failing to exercise oversight in a sustained or systemic way. The Delaware Court noted in its opinion that the theory underpinning a Caremark claim is one of the most difficult for plaintiffs to prove. As a result, boards of directors have enjoyed nearly unlimited protection, regardless of events occurring at the company on their watch. However, this longstanding protection has begun to wane in the past four years.

First Page

719

Last Page

776

Publication Date

2023

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