Elon Musk Meets With House Speaker Kevin McCarthy

January 27, 2023
Business

The McDonald’s ruling everyone is talking about

A landmark Delaware chancery court ruling this week could put a whole new rank of company officials in the legal firing line for breaches of fiduciary duties — not just the board.

“Duty of oversight” extends beyond directors. Vice Chancellor J. Travis Laster ruled that David Fairhurst, former global chief people officer at McDonald’s, could be sued by shareholders who accused him of allowing a “culture of sexual misconduct and harassment to develop” at the company. (Mr. Fairhurst took on the role shortly after Steve Easterbrook became C.E.O., and both men were fired following allegations of inappropriate behavior.) When it comes to breaches of fiduciary duties — like so-called “duty of oversight” — Delaware courts have typically ruled that the buck stops with the board. Fairhurst had sought that very legal protection, but Mr. Laster, in a first-of-its-kind ruling for the court, rejected the argument.

This has huge implications for officer liability. Giving company executives the “duty of oversight,” given that they manage much of a company’s daily operations, means they can be sued for big money — millions, or even billions. (Many of these lawsuits would be covered by directors and insurance liability, said Kevin LaCroix, a lawyer who specializes in such matters.)

Several lawyers told DealBook that, in this case, the level of oversight responsibility is defined so broadly that it opens the floodgates to lawsuits. What happens, for example, to the chief information security officer whose company is hacked? Expect a rash of reports from corporate law firms criticizing the decision.

Others argued that perhaps courts have for too long given executives the benefit of the doubt, and that the threat of eye-popping shareholder lawsuits is far more powerful in ensuring rightful duty than, say, the possibility of a $10,000 settlement in an employment lawsuit (a more typical remedy for something like allowing a corrosive culture).

What do you think? Should liability extend beyond the board? Email us at dealbook@nytimes.com.

THE SPEED READ

Deals

The F.T.C. reportedly sued to block Microsoft’s $69 billion takeover of Activision Blizzard in December in part to dissuade European counterparts from agreeing to accept the deal with some conditions. (Bloomberg)
The venture firm New Enterprise Associates raised $6.2 billion for its two latest investment funds. (Axios)
How Shearman Sterling went from being one of Wall Street’s top law firms to seeking a merger partner to compete against fast-growing competitors. (Law.com)

Policy

The F.D.A. asked Congress for more power to oversee CBD products. (NYT)
Mayor Eric Adams of New York City said Uber and Lyft would be required to operate a zero-emissions fleet of ride-hailing vehicles in the city by 2030. (The Verge)

Best of the rest

Shares in BuzzFeed more than doubled after the publisher said it would use technology from ChatGPT’s creator to help create content like quizzes. (WSJ)
In an age of blockbusters and shrinking streaming budgets, is the Sundance Film Festival still relevant? (NYT)
“If we’re good, we’re good”: Here’s the teaser for the next season of “Succession.” (HBO)

We’d like your feedback! Please email thoughts and suggestions to dealbook@nytimes.com.

Article source: https://www.nytimes.com/2023/01/27/business/dealbook/musk-mccarthy-twitter.html