Reality Check on Officer Liability

• Published in: The Business Lawyer 2011-11, Vol.67 (1), p.75-97
• Main Authors: Johnson, Lyman, Ricca, Robert
• Format: Article
• Language: English
• Subjects: Boards of directors; Corporate governance; Corporate liability; Corporate officers; Corporate regulation; Corporations; Duty of care; Executive compensation; Fiduciary duties; Fiduciary liability; Fiduciary responsibility; Judicial reviews; Laws, regulations and rules; Liability; Litigation; Office management; Powers and duties; Standards of care; Stockholders; Strict liability
• ISSN: 0007-6899; 2164-1838

This article addresses the fiduciary duties of corporate officers. Responding to a critique that recent scholarly analyses of officers depart from reality, it argues that, on a variety of grounds, those analyses are more realistic than the critique and provide doctrinal coherence and advance the goal of meaningful executive accountability. The divergent governance functions of directing versus managing are described and it is argued that those disparate roles should matter f or fiduciary duty analysis. No great outbreak of litigation should be expected if officers are held to a stricter duty of care than directors because boards of directors, not courts, likely will resolve the vast majority of disputes concerning officer breaches of duty. The ex ante and ex post roles of fiduciary duties are emphasized, and the need for the Delaware legal community to more fully address more fully officer duties is noted, lest the federal government emerge as the chief regulator of senior management, a role central to corporate governance.