Corporate Officers Have a Duty of Oversight

The Delaware Court of Chancery recently reached its decision in a lawsuit against David Fairhurst, who served as the Executive Vice President and Global Chief People Officer of McDonald’s from 2015 to 2019. The lawsuit blames Fairhurst for allowing a toxic workplace to develop at McDonald’s, and the Delaware Court of Chancery agrees.

The case is interesting because Fairhurst is not accused of actively fostering a toxic work environment. Instead, the lawsuit alleges it was under Fairhurst’s leadership that other employees engaged in sexual harassment and misconduct. While Fairhurst himself has not been accused of engaging in any of this inappropriate behavior, the lawsuit alleges he ignored serious red flags that indicated the company culture was moving in the wrong direction.

The fact that the Delaware Court of Chancery agreed that Fairhurst failed his duty of oversight has serious implications for corporate officers working in Delaware. This is the first time that a Delaware court has indicated that corporate officers (not just directors) have a duty of oversight. This makes officers responsible for the behavior in which other people at the company engage, even if the officer does not partake in that behavior themselves.

If you’re wondering if this means officers are now responsible for everything that happens in a corporation, the answer is not always. CEOs and other senior executives with a company-wide responsibility do have a duty of oversight that extends across the entire company. For example, since Fairhurst was Global Chief People Officer at McDonald’s, he was responsible for managing all the employees at the company, regardless of where they were located in the country, or even in the world.

Executives with a narrower focus have a duty of oversight that only covers their focus. For example, officers responsible for the workings of a corporation in a certain geographical region have a duty of oversight that covers only that region. By the same token, CMOs only have a duty of oversight over the marketing department, CFOs only have a duty of oversight over the financial department, etc.

If you work for a corporation, you can expect more paperwork and red tape to surround everything you do, especially if you hold a high-level position in that company. Shareholders, especially shareholders in Delaware, are increasingly demanding access to books and records of their companies to investigate any wrongdoing. Any gaps in those records will look suspicious, which means it will be up to executives to maintain those records … and to hand them over when shareholders request them.

More litigation could also be in your future. The Delaware Court of Chancery’s ruling in this matter has set a precedent for the level of responsibility expected from corporate officers. Shareholders of Delaware corporations who are not happy with the corporate culture, or any other aspect of the way the company is being run, might take this opportunity to take their grievances to court.

At Lubin Austermuehle, we’re all business when it comes to offering the highest level of quality service to businesses engaged in complex disputes, whether it’s shareholder oppression, breach of contract, defamation and far more. We’re also class action attorneys who have earned a reputation for victories, including what Crain’s Chicago Business called “the largest class action settlement in Illinois.” From Naperville to the North Side, we are here for you. Call and take advantage of our FREE consultation where we can discuss your specific needs and wishes and our ability to meet them. Contact us here or call us at 630-333-0333.