The Caremark Standard: Tough but Not Impregnable

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Board Perspectives: Risk Oversight, Issue 118

A landmark 1996 case before the Delaware courts, the Caremark decision, clarifies the board’s oversight duties. Caremark International Inc. shareholders brought a derivative action, alleging the directors breached their duty of care by failing to put in place adequate internal control systems. The court outlined what plaintiffs must prove when claiming that directors breached their duties.

Recently, the Supreme Court of Delaware overturned and remanded a decision by the Chancery Court, ruling a plaintiff had indeed scaled the Caremark standard. Whether this decision prompts Delaware case law to evolve remains to be seen. This issue of Board Perspectives offers advice for directors to consider.

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