Delaware Courts Emphasize the Importance of Caremark Duties

Two recent Delaware cases have reemphasized the importance of Caremark *duties, which require directors, in order to satisfy their duty of loyalty, to make a good faith effort to oversee their company’s operations by implementing board-level oversight and monitoring. On June 19, 2019, in *Marchand *v. *Barnhill, the Delaware Supreme Court held that directors may be found to have breached their duty of loyalty under Caremark *if there is no board-level system in place for monitoring and reporting on key risks and compliance issues facing the company. Then, on October 1, 2019, the Delaware Court of Chancery in *In re Clovis Oncology, Inc., declined to dismiss a stockholder derivative suit on Caremark *grounds after finding that, although the board had established a robust board-level compliance system with respect to clinical trials, it had consciously failed to monitor that system by ignoring clear red flags. In light of these cases, directors should ensure that their companies have reasonable compliance systems and protocols in place with respect to the key risks facing their companies and that they provide direction for managing and addressing key risks once identified. The full text of the *Marchand *case is available here and the Sullivan & Cromwell memorandum on the topic is available here. The full text of the *Clovis Oncology case is available here, and the Sullivan & Cromwell memorandum on the topic is available here.