Gantler v. Stephens: Big Epiphany or Big Failure? A Look at the Current State of Officers’ Fiduciary Duties and Advice for Potential Protection

Michael Follett

The multiple corporate scandals of the early twenty-first century have recently focused much attention on the duties and liabilities of corporate officers. The Delaware Supreme Court, renowned for its corporate governance decisions, recently decided Gantler v. Stephens and held that corporate officers owe the same fiduciary duties as corporate directors.

Before Gantler, two competing views emerged with respect to the protections courts should extend to corporate officers for alleged breaches of fiduciary duty. One argued that officers and directors were equal fiduciaries and, therefore, courts should afford them the same business judgment presumption. Another contended that officers were agents of the corporation because they had greater responsibility over the day-to-day operations of the companies and, thus, should not be given the deferential treatment of the business judgment presumption. Gantler is important because it expressly held that officers are fiduciaries; however, the opinion left some very important questions undecided. One of those questions is whether the business judgment rule applies to officers. Another question is whether the Delaware General Assembly, through the Delaware General Corporation Law, should permit companies to exculpate officers from liability similar to the 102(b) (7) protections available to directors. This note argues that the business judgment rule should apply equally to officers and directors.

This note does not advocate, however, that the General Assembly afford officers exculpatory protections. The business judgment rule is sufficient protection against an officer’s potential liability. It will allow officers to take the necessary risks to allow their businesses to grow without having to worry about judicial second-guessing of a sound business strategy, provided, of course, that the officers exercise due diligence before engaging in potentially risky behavior. Eliminating the deterrent of potential personal liability by allowing exculpatory protections of all fiduciary duties will only induce reckless decision making, which could lead to morally hazardous situations. Finally, this note asserts that the bar for establishing what constitutes good faith conduct by directors has been set too low to allow for officer exculpation. If officers are granted these protections, they will be almost completely immune from liability.