Below is a link to a bit that I was reading this morning from thecorpratecounsel.net.
In a short space the discussion covers three matters that I find noteworthy. In Hughes v. Hu the Court denied a motion to dismiss the claims alleging that the directors, more specifically the audit committee members, failed to satisfy their director fiduciary duties, also sometimes referred to as Caremark duties or claims. Now, if you read the Court’s opinion, the alleged breaches of duty, if they are found to be true as alleged, are pretty egregious indicating obvious red flags that were ignored including possible lack of sufficient expertise to perform required duties and responsibilities. I don’t expect there to be a new run on cases in which Courts start allowing a significant increase in Caremark type cases to proceed. However, I do believe that we have already entered into the beginning stages of an era or period of time when the expectations that investors and the public have of officers and directors are increasing and have increased (witness the development of interest in ESG, for example). Whether or not those increasing expectations correspond into legal duties and responsibilities is yet to be seen, and there will be ebbs and flows – nevertheless, however, and right or wrong, through social media those expectations and perceived breaches thereof will impact the reputations of and perceptions about the business and the people who are involved and who are simply alleged to be involved.
The discussion also discusses CAMs, and audit committees, both of which I have covered and will continue to cover. CAMs, or critical audit matters are new, of course, and at this early stage we don’t really know much about how they will develop in time. CAMs are written by the auditor in the auditor’s view, or at least they are supposed to be. And CAMs are also discussed with the audit committee, and others. I believe that most likely CAMs will increase in importance over time and that there will be a push for auditors to say more and provide more auditor disclosure and evaluation. But we’ll see . . .
Best to you, Dave Tate, Esq. (San Francisco and California)
Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.
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Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.
I am also the Chair of the Business Law Section of the Bar Association of San Francisco.
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