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I was curious to know the context and on 2023 the Delaware Court of Chancery made corporate officers personally liable. Very big shift. https://www.cov.com/en/

by graeme 2y ago

I was curious to know the context and on 2023 the Delaware Court of Chancery made corporate officers personally liable. Very big shift. https://www.cov.com/en/news-and-insights/insights/2023/04/for-the-first-time-a-delaware-court-holds-that-corporate-officers-have-a-duty-of-oversight https://www.cov.com/en/news-and-insights/insights/2023/04/fo...

boole1854 2y ago
That article states: > Although some scholars and practitioners have long argued that officers should or do owe a duty of oversight, and as a practical matter many officers likely assume that they have such an obligation, McDonald’s marks the first time this duty was explicitly acknowledged by a Delaware court. To me this seems to imply that the ruling was incorporating the already existing practice into law, which would seem to imply that it isn't a big shift.
dkjaudyeqooe 2y ago
"Based on McDonald’s, officers, like directors, now have a duty of oversight. Officers will be liable for violating that duty if, within their area of responsibility, they consciously fail to make a good faith effort to establish information reporting systems, or they consciously ignore red flags that arise from those reporting systems or otherwise come to their attention." Most people would have assumed this is already the case. It's not exactly shocking.
- immibis 2y ago
  Not in Delaware where corporations base themselves precisely because the rules are lax.
  - matwood 2y ago
    I have never read or heard the rules are lax. What they are is consistent and have a large amount of precedence and case law behind them.
    - citadel_melon 2y ago
      Yes. And also because their rules are lax. The state is what it is today because bussiness-friendly New Jersey raised their state taxes in 1911, so corporations fled to Delaware. Another important piece of background information is that there exists a council of the Delaware bar which is a group of 27 lawyers — who often have very close ties to industry — that craft proposals. The council then passes their proposals to the state legislature who rubber stamp them into law because these politicians can’t speak the necessary legalese to audit the bills, but more importantly, because these legislators don’t want to cross the power brokers sitting on the council. Effectively, the Delaware’s legislature is run by 27 unelected corporate lawyers who (over many decades) have turned the state into the Cayman Islands. Moreover, I agree the laws are consistent in Delaware, but its not like New York doesn’t have just as strong, if not stronger, history of legal precedent. Favoring Delaware because its “large amount of precedence and case law” is a euphemism for “large amount of precedence and case law in favor of corporate interests”. Source: https://freakonomics.com/podcast/why-does-one-tiny-state-set-the-rules-for-everyone/ https://freakonomics.com/podcast/why-does-one-tiny-state-set... Edit: the podcast I mention also discusses a lot about the looseness of Delaware’s laws. One example they bring up is how little effort it takes to incorporate in the state, leading to criminals choosing to incorporate in Delaware to legitimize their illicit operations. This is just one example.

by graeme 2y ago

boole1854 2y ago

That article states: > Although some scholars and practitioners have long argued that officers should or do owe a duty of oversight, and as a practical matter many officers likely assume that they have such an obligation, McDonald’s marks the first time this duty was explicitly acknowledged by a Delaware court. To me this seems to imply that the ruling was incorporating the already existing practice into law, which would seem to imply that it isn't a big shift.

dkjaudyeqooe 2y ago

"Based on McDonald’s, officers, like directors, now have a duty of oversight. Officers will be liable for violating that duty if, within their area of responsibility, they consciously fail to make a good faith effort to establish information reporting systems, or they consciously ignore red flags that arise from those reporting systems or otherwise come to their attention." Most people would have assumed this is already the case. It's not exactly shocking.

immibis 2y ago
Not in Delaware where corporations base themselves precisely because the rules are lax.
- matwood 2y ago
  I have never read or heard the rules are lax. What they are is consistent and have a large amount of precedence and case law behind them.
  - citadel_melon 2y ago
    Yes. And also because their rules are lax. The state is what it is today because bussiness-friendly New Jersey raised their state taxes in 1911, so corporations fled to Delaware. Another important piece of background information is that there exists a council of the Delaware bar which is a group of 27 lawyers — who often have very close ties to industry — that craft proposals. The council then passes their proposals to the state legislature who rubber stamp them into law because these politicians can’t speak the necessary legalese to audit the bills, but more importantly, because these legislators don’t want to cross the power brokers sitting on the council. Effectively, the Delaware’s legislature is run by 27 unelected corporate lawyers who (over many decades) have turned the state into the Cayman Islands. Moreover, I agree the laws are consistent in Delaware, but its not like New York doesn’t have just as strong, if not stronger, history of legal precedent. Favoring Delaware because its “large amount of precedence and case law” is a euphemism for “large amount of precedence and case law in favor of corporate interests”. Source: https://freakonomics.com/podcast/why-does-one-tiny-state-set-the-rules-for-everyone/ https://freakonomics.com/podcast/why-does-one-tiny-state-set... Edit: the podcast I mention also discusses a lot about the looseness of Delaware’s laws. One example they bring up is how little effort it takes to incorporate in the state, leading to criminals choosing to incorporate in Delaware to legitimize their illicit operations. This is just one example.