The duty of oversight, often referred to within the context of corporate governance, is a critical aspect of the responsibilities of a corporation’s board of directors. This duty is essentially the requirement that board members are attentive to and oversee the business and affairs of the corporation, including its compliance with the law and its risk management processes. The duty of oversight is a component of the fiduciary duties that directors owe to the corporation and its shareholders.
The case In re McDonald’s Corp. S’holder Deriv. Litig., 2023 WL 387292, C.A. No. 2021-0324-JTL, at *1, *9 (Del. Ch. Jan. 26, 2023) is centered around allegations that the McDonald’s directors overlooked signs of a corporate culture permitting sexual harassment and misconduct from 2015 to 2020. The plaintiffs, who are shareholders, contend that this resulted in harm to the company due to subsequent employee lawsuits, loss of employee trust, and a damaged reputation. Nine directors who served during this period were named as defendants.
David Fairhurst, who served as Executive Vice President and Global Chief People Officer of McDonald’s from 2015 until his termination in 2019, was among the defendants. The plaintiffs argued that Fairhurst, as a fiduciary, was aware of potential issues with sexual harassment and misconduct in the company. They claimed that under his leadership, a culture of sexual misconduct and harassment was allowed to develop, leading to coordinated Equal Employment Opportunity Commission (EEOC) complaints, a 30-city walkout, and a second round of coordinated EEOC complaints, followed by a second one-day strike in 10 cities.
To fully grasp how this case has impacted Delaware Law concerning the duty of oversight, it is essential to understand the concept of a Caremark claim. This type of “failure of oversight” theory is observed to be one of the most challenging theories in corporation law upon which a plaintiff might hope to win a judgment. Under Delaware law, plaintiffs must plead with particularity that there were so-called ‘red flags’ that put the directors on notice of problems with their systems, but which were consciously disregarded.
Remember, LLC derivative suits require strategic thinking and meticulous attention to detail. Lubin Austermuehle is here to provide you with the legal guidance and representation you need to navigate these complex matters successfully.
Contact us today at 630-333-0333, and let’s work together to protect your LLC’s interests, reputation, and future in LLC derivative actions. Your LLC deserves nothing less than the best in legal representation, and Lubin Austermuehle is here to deliver it.