Abstract
One of the most important aspects of Delaware corporate law is the duty of oversight, which requires corporate directors and officers to establish and maintain reasonable oversight systems at their companies. In determining whether a director or officer has breached their duty of oversight, courts apply the bad-faith standard. This Note contends that the bad-faith standard is an ineffective way to hold corporate directors and officers accountable for their lack of oversight because under the bad-faith standard, courts are unable to distinguish nonmeaningful performative action that is merely intended to create the illusion of good-faith oversight from true good-faith action. Consequently, this Note argues that the bad-faith standard should be replaced with a gross-negligence test for oversight claims stemming from regulatory violations. Alternatively, this Note posits that oversight claims stemming from regulatory violations should be replaced with duty of loyalty claims. By adopting either approach, courts will finally be able to hold corporate directors and officers accountable for their lack of oversight while simultaneously protecting shareholder investments and maintaining public trust in the judiciary.
Recommended Citation
Joshua Dana,
Performative Actions and Profits: A New Test for Delaware Derivative Oversight Claims,
90 Brook. L. Rev.
589
(2025).
Available at:
https://brooklynworks.brooklaw.edu/blr/vol90/iss2/6
