Canadian Directors Should Heed Recent U.S. Caremark Litigation

Over the past year there has been a noticeable uptick in claims permitted by Delaware courts alleging a failure by directors to make a good faith effort to monitor corporate operations – otherwise known as a Caremark claim.¹ A Caremark claim is founded on the principle that directors have, as a subset of their fiduciary duty of loyalty, a duty to monitor and oversee corporate operations – failing which, they risk facing personal liability under Delaware law. The Caremark duty does not (yet) exist in Canada. However, it is easy to contextualize such a duty within the fiduciary duty and duty of care owed by directors under Canadian corporate law. Operational risk is increasingly an area that key stakeholders expect boards to actively monitor as part of their ultimate oversight responsibilities, including oversight of key enterprise risks.