Senior Corporate Officers and the Duty of Candor: Do the CEO and DFO Have a Duty to Inform?

Abstract

This article focuses on the duty to inform as a framework to assess liability of senior officers of public companies who withhold information from directors. The broadening of the definition of the duty to inform that senior officers owe directors to include an underlying affirmative duty to provide information, even when director or shareholder action is not requested, offers an opportunity for greater monitoring of corporate governance by focusing on those often most culpable. Currently, the plain language of Delaware’s delegation of authority statute protects directors who reasonably rely in good faith on the reports of corporate officers. However, officers’ reports must include more than minimum disclosure requirements. An affirmative duty to inform means senior corporate officers many not remain silent when in possession of superior information unknown to directors and that they have an underlying obligation of disclosure to enable directors to properly meet their oversight obligations. Part II of this article provides an overview of the Disney litigation. Part III of this article explores the rationale that senior corporate officers and directors owe the same fiduciary duties. Part IV examines the duty of disclosure in Delaware. Part V explores the fiduciary duties of senior officers as managers of the day-to-day affairs of the corporation and their superior position of control over directors. Finally, in Part VI, this article concludes that Delaware state fiduciary claims remain an important tool for shareholders to monitor corporate governance.

Keywords: Senior corporate, inform, duty to inform, withhold information, authority statue, affirmative duty, obligation, Disney litigation