It seems that almost every day there is another report of a corporate scandal at a public company. Whether the scandal involves sexual harassment by senior management or widespread illegal conduct by employees, the first question asked by investors and themedia is usually, “Where was the board?” And the board’s response is almost always, “We didn’t know.” Directors of public companies rely on officers to provide the information the board needs to manage the corporation, but, strangely enough, officers may not even be legally required to provide information to the board. The Delaware General Corporation Law is silent on the issue. Some commentators have argued that fiduciary duties impose on officers a duty to provide information to the board, but the Delaware courts have been slow to address this issue. In this article, I demonstrate that the few cases addressing the fiduciary duties of officers do not completely clarify whether officers have a fiduciary duty to provide information to the board or what the duty requires. I then propose a new approach: using private ordering to improve the information flow to the board of directors. I recommend that the bylaws of all public companies should include a new type of bylaw, a “Duty to Inform Bylaw.” A Duty to Inform Bylaw would impose on the Chief Executive Officer and the Chief Financial Officer a duty to inform the board promptly of all information necessary to enable the board to manage the business and affairs of the company in conformity with its statutory and fiduciary obligations.
* Professor of Law, Villanova University Charles Widger School of Law. J.D., George Washington Law School; B.S.E., Wharton School of the University of Pennsylvania.
The author gratefully acknowledges that research for this article was supported by a summer stipend from the Villanova University Charles Widger School of Law.