Delaware Court of Chancery

The US decision reminds UK companies and their officers to identify and report red flags about misconduct in the workplace.

By Nell Perks, Nathan H. Seltzer, and Georgie Blears

Certain shareholders of McDonald’s Corporation (the Company) sued David Fairhurst, the Company’s former executive vice president and global chief people officer, on behalf of the Company for allegedly breaching his duty of oversight “by allowing a corporate culture to develop that condoned sexual harassment and misconduct” and for “consciously ignoring related red flags”.

In the recent ruling in the matter of In Re McDonalds Corporation Stockholder Derivative Litigation, the Delaware Court of Chancery denied Fairhurst’s motion to dismiss the lawsuit. The court held that corporate officers, like directors, owe shareholders a fiduciary duty of oversight to report upward to more senior officers or to the board credible information that a company may be violating the law, and to not consciously ignore red flags. (Read this Latham Client Alert for more on the decision.)