The last few days, I’ve been writing about the legal issues raised by Jon L. Pritchett and Ed Tiryakian in a recent opinion piece published by The Wall Street Journal. To sum up the discussion so far, Professor Stephen Bainbridge responded to Messrs. Pritchett and Tiryakian by arguing that the business judgment rule should bar such suits. I disagreed, pointing out that the business judgment rule may, or may not, apply to CEOs qua officers, depending upon the applicable law. Yesterday’s post noted that Nevada’s “other constituency” statute, NRS 78.138, would provide a significant, and perhaps insurmountable, bar to such suits.
Plaintiffs may have a few other arrows in the quivers. Officers are agents and often employees of the corporation and as such are bound by the laws of agency and employment. As such, they could be liable for breaches of their obligations under the laws of agency or employment. A shareholder, for example, may allege that a CEO engaged in social activism exceeded his or her authority (Cal. Civ. Code § 2315), failed to follow the board’s instructions (Cal. Lab. Code § 2856), or failed to keep the board informed (Cal. Lab. Code § 2861). Of course, any causes of action based on these theories would be derivative and a shareholder would need to meet applicable requirements for maintaining a derivative suit.
Hodie Roma captabatur
On this date in 410 CE, the Goths under the leadership of Alaric sacked the eternal city.
Eleven hundred and sixty-three years after the foundation of Rome, the Imperial city, which had subdued and civilized so considerable a part of mankind, was delivered to the licentious fury of the tribes of Germany and Scythia.
Edward Gibbon, The Decline and Fall of the Roman Empire, Chapt. XXXI.