What They Don't Know Can Hurt Them: Corporate Officers' Duty of Candor to Directors

Citation data:

Delaware Journal of Corporate Law (DJCL), Vol. 34, No. 1, 2009

Publication Year:
2009
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SSRN
SSRN Id:
1396977
Author(s):
Shannon German
Tags:
Delaware; Journal; Corporate; Law; duty of candor; Desimone; Barrows
paper description
The duty of candor has developed significantly over the past century of Delaware corporate jurisprudence. As the duty currently stands, corporate directors and officers owe a duty to disclose material information to the shareholders. In light of recent corporate scandals - most notably those involving options backdating - a significant gap has appeared which could be aptly filled by an expansion of the duty of candor so that corporate officers owe a duty to disclose material information to the directors. If the duty of candor were expanded to encompass corporate officers' communications with directors, then directors would be better suited to fulfill their fiduciary duties. Using Desimone v. Barrows as a case study, this article summarizes the current state of the duty of candor in Delaware case law and suggests an expansion of that duty. After review of the options backdating cases, this article concludes that an internal duty of candor would have provided a way for shareholders to bring derivative suits on behalf of the corporation against the officers who knowingly engaged in the deceptive behavior. Imposing liability for a breach of an officer's duty of candor to the corporation would provide a remedy for the corporation - and its shareholders - for the alleged wrongdoing.