Delaware Courts Beef Up Caremark Claims Involving Corporate Misconduct While Leaving Hot-Button Political and ESG Issues to the Boardroom
The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2024”.
In 2023, Delaware courts continued to vigorously apply Caremark’s duty of oversight in cases involving corporate misconduct, expressly recognizing for the first time that such claims can be brought against officers in addition to directors. While a Caremark claim does not necessarily require illegal conduct, Delaware courts continue to make clear that knowing inaction when confronted with illegal conduct is often enough to satisfy its bad faith requirement. This emphasis on bad faith and misconduct may suggest a more functional approach to Caremark claims by Delaware courts, and a departure from the more formal categories of Caremark claims that Delaware courts relied on in the past. At the same time, we saw Delaware courts sidestep hot-button issues related to corporate political advocacy and defer to the business judgment of boards in order to navigate those sometimes controversial issues. Finally, we ended 2023 with an uncertain understanding of the scope of MFW review, which has expanded beyond the squeeze-out context in recent years. The Delaware Supreme Court is currently considering whether to cut back on such “MFW creep.”
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