In Gantler v. Stephens, No. 132, 2008 (Del. Jan. 27, 2009)–an otherwise routine case involving a shareholder derivative suit involving the fiduciary duties of directors of a corporation, the Delaware Supreme Court affirmed that officers
owe fiduciary duties of care and loyalty, and that the fiduciary duties of officers are the same as those of directors.
Id., Slip Op. at 24. It’s hard to imagine that anyone would imagine that they did not owe fiduciary duties; officers, employees and agents of corporate principals all owe the same agency-based fiduciary duties.
One interesting aspect of Gantler is the Court’s observation that fiduciary shield provisions in the certificate of incorporation do not apply to officers:
That does not mean, however, that the consequences of a fiduciary breach by directors or officers, respectively, would necessarily be the same. Under 8 Del. C. ยง 102(b)(7), a corporation may adopt a provision in its certificate of incorporation exculpating its directors from monetary liability for an adjudicated breach of their duty of care. Although legislatively possible, there currently is no statutory provision authorizing comparable exculpation of corporate officers.
Id., Slip Op. at 24 n.37. By way of contrast, Section 18-1102(e) an LLC Agreement may modify or liability for breach of fiduciary duties by "a member, manager or other person".
I suspect that the Delaware legislature is already at work on an amendment to Section 102(b)(7) of the Delaware General Corporation Law. I would not be shocked if they also expanded that section to allow elimination of liability for all fiduciary duties. In a recent article, Professor Ann Conaway (Widener)suggested that they do so. Ann E. Conaway, Lesson To Be Learned: How the Policy of Freedom of Contract in Delaware’s Alternative Entity Law Might Inform Delaware’s General Corporation Law, 33 DEL J. CORP. LAW 789, 817-18 (2008).
Hat tip to Francis G.X. Pileggi, Delaware Corporate & Commercial Litigation blog.
posted by Gary Rosin
Update: Over at the "Glom", Professor Usha Rodrigues (Georgia) argues that
now is not an opportune time for executives to be seeking exculpation due to the anti-executive social-political climate.
I’m not sure that will deter the strong contractarian push in Delaware for freedom to delete duties of all sorts, including fiduciary duties. That said, even the statute gets amended, it would require an amendment to a corporations certificate of incorporations–and thus shareholder approval–to add exculpation of officers or deletion of duties. Here, Prof. Rodrigues is probably right; shareholders will probably not be inclined to approve. Also, for the large public corporations, the activist institutional investors would oppose it. And if such a request got out into the press, it would draw strong negative reaction from the public.
GR