By Sebastian Meis, LL.M., Felix Faerber, Dr. Maximilian Oehlschlaegel, LL.M. und Belana Knossalla


Delaware Court of Chancery, No. 2021-0324-JTL, 01/26/2023

In a first-of-its-kind decision from January 26, 2023, the Delaware Court of Chancery has expanded fiduciary duties for corporate officers by assigning them a duty of oversight comparable to that owed by a board of directors. The decision, which rules on a lawsuit brought up by stockholders of a corporation against a former corporate officer, establishes new ways of liability for officers and pushes companies to act. Though the court has clarified in the past that directors and officers are subject to the same duties, this is the first time that a duty of oversight has been explicitly imposed on officers. The court’s opinion provides many reference points about what behavior is being expected and what would constitute the proper execution of that duty.

Factual Background

In 2015, the corporation faced its first sales decline in several years. The company’s board of directors therefore hired a new CEO; a long-time employee of the company, who quickly promoted the defendant, another long-term employee, to Global Chief People Officer (CPO). This position corresponds to the role of head of Human Resources (HR).

After the appointment of the new CPO, a “party atmosphere” reportedly developed at the company’s headquarters.

Various employees reported uncomfortable encounters, sexual harassment and misconduct, especially during company events. Complaints in regard to those encounters were not properly addressed within HR, even after public scrutiny over reports concerning misconduct and sexual harassment to the Equal Employment Opportunity Commission (EEOC).

Complaints regarding sexual harassment by the CPO himself arose after a company event in 2018. Following that incident, no actual steps were taken to ensure appropriate behavior in the future apart from filing a conduct and release agreement.

Public backlash ensued over the general misconduct within the headquarters, resulting in both the CPO and the CEO signing separation agreements with the board of directors in 2019 and leaving the company.

In November of 2019, several employees filed a class action lawsuit, challenging the company’s problems with sexual harassment and misconduct.


Stockholders have sued the former CPO on the company’s behalf. They claim that he breached his fiduciary duties, which allegedly include a duty of oversight, by ignoring signs of sexual harassment and misconduct.

This duty of oversight required him to report any relevant information upward to the board of director and the CEO, which he did not adhere to, the stockholders further alleged.

The defendant, however, claimed that Delaware law does not impose a duty of oversight on corporate officers and moved to dismiss the claim.

Case Takeaways

The Court confirmed the plaintiff’s notion and the claim of a duty of oversight for corporate officers to at least the same, if not to a greater extent, than directors.

It stated that under Delaware law, officers and directors are subject to the same fiduciary duties, including the duty of oversight – and by that resolved a legal uncertainty that was left unanswered for decades.

As CPO, the duty of oversight comprises the duty to make a good faith effort to establish an information system for obtaining relevant information and, if necessary, reporting red flags that occur within these systems.

The concept of the duty of oversight originated in the Delaware Supreme Court’s decision in Graham vs. Allis-Chalmers Manufacturing (1963) and later, more famously, in the Caremark Opinion (1996).

Directors undisputedly owe a duty of oversight. According to Gantler vs. Stephens (2009), “the fiduciary duties of officers are the same as those of directors”. The court now stated that officers owe that same duty of oversight.

In reaching this conclusion, the court explained that resulting from their function in the daily business of a company, officers are in an optimal position to identify problems and communicate them to a board of directors. Vice Chancellor Travis Laster’s noted that “The officers are far more able to spot problems than part-time directors who meet a handful of times a year.”

Depending on the officer’s area of authority, the scope of the duty of oversight differs between positions. Officers are responsible for addressing and reporting problems within their area of responsibility, however, they cannot consciously ignore issues outside the scope of their responsibility.

Concerning liability, officers can be held accountable for violations of their duties if there is sufficient information which substantiates they acted in bad faith.

Here, the plaintiffs were able to adequately prove the former CPO’s knowledge of the misconduct that was occurring at the company. At the very least, the complaints to the EEOC would have been a red flag and an obvious sign to take action for an officer in good faith.

As CPO, he was responsible for overseeing Human Resources as well as making an effort to maintain a safe and respectful environment for employees.

By not reporting any complaints of misconduct and committing acts of sexual harassment himself, it is reasonable to conclude that he consciously ignored red flags did not make any effort to establish and utilize an information system, and therefore was acting in bad faith.

Implications for American Corporations

This first-of-its-kind decision gives many companies a reason to act and review their internal processes as well as, in particular, the functionality of their information systems.

It has called attention to the potential for corporate executives to be held personally liable for failing to provide adequate oversight in circumstances of misconduct and other red flags indicating risks that a company may be confronted with.

Minimizing Liability Risks

In order to reduce liability risks, it is necessary to ensure the officers satisfactorily fulfill their duty of oversight in their designated area of authority and that the board of directors is informed of any red flags.

A two-step-system is recommended to mitigate these liability risks:

  1. First, it must be ensured that the officers concerned are making sufficient efforts to implement information and reporting systems.
  2. Second, officers must act in good faith to monitor and ultimately report any red flags that arise in these systems to the appropriate parties and the board of directors.

Scope of the Duty of Oversight

Though the duty of oversight applies to officers only to the extent of their area of responsibility, for certain types of officers, such as the CPO or even the CEO, whose scope of responsibility comprises nearly the entire company, it follows, then, that duty may also be imposed on a company-wide basis.

Liability Requirements

In this matter, the Delaware Court of Chancery has made clear that the requirements for making a case against an officer for breaching the duty of oversight are rather stringent.

Thus, plaintiffs must prove that officers failed to take any steps altogether to establish information systems with respect to red flags and, in addition, acted in bad faith. 

Consequences and Training

Therefore, it is essential for executives to verify that the information and reporting systems within the company are working.

It is further advisable to lay out the oversight responsibilities in written agreements and to sufficiently train corporate officers in regard to their specific fiduciary duties.

Though it is uncertain whether this decision will have an impact on the jurisdiction in different states, it is essential for both Delaware and non-Delaware corporations to ensure reliable, working information systems and the compliance of their officers.

Footnote: Delaware Court of Chancery Tightens Duties of Corporate Officers

As of March 1st 2023, the Delaware Court of Chancery has dismissed the claims brought against
the director defendants in a new opinion. The court stated that the plaintiffs failed to prove that
the directors breached their fiduciary duties and again underlined the high thresholds for
claiming a duty of oversight in the sense of the Caremark ruling. However, this does not impact
the ruling against the former CPO of the company and the court continues to uphold the
existence of the duty of oversight for corporate officers.


Die Autoren: 

Sebastian Meis, LL.M. ist in Deutschland und den USA zugelassener Rechtsanwalt und Shareholder sowie Teil des Cross-Border Corporate Teams bei Baker, Donelson, Bearman, Caldwell, & Berkowitz, PC.

Felix Faerber ist in den USA zugelassener Rechtsanwalt und Associate sowie Teil des Cross-Border Corporate Teams bei Baker, Donelson, Bearman, Caldwell, & Berkowitz, PC.

Dr. Maximilian Oehlschlaegel, LL.M. ist in Deutschland und den USA zugelassener Rechtsanwalt und Associate sowie Teil des Cross-Border Corporate Teams bei Baker, Donelson, Bearman, Caldwell, & Berkowitz, PC.

Belana Knossalla ist Jurastudentin und Praktikantin bei Baker, Donelson, Bearman, Caldwell, & Berkowitz, PC.


Responsible Editor: 

Prof. Dr. Karsten Schmid, TLB Editor-at-Large