Corporate Governance Failures and the Managerial Duty of Care

(Excerpt) One of the questions explored in this Article is the potential role of corporate officers in revealing unlawful behavior within the firm. My focus is on officers who are not board members, and who are not themselves involved in conflicts or wrongdoing that may potentially harm the company-corporate officers such as Sherron Watkins. I examine the often-stated proposition that corporate officers owe a fiduciary duty of care. In addition to suggesting a theoretical approach that distinguishes the managerial standard of care from the duty owed by directors, I offer a practical proposal that creates a relationship between board members and senior corporate officers who do not serve on the board.

In order to satisfy their duty of care, managers should have available to them a method of communicating with outside directors concerning possible malfeasance that will not jeopardize their professional standing within the company. One way to accomplish this is for the board to establish a system of communication between its members and officers who do not serve on the board. Obviously, managers should be able to communicate with independent directors in confidence. In order to explore the benefits of greater officer director communication I also examine the problem of racial discrimination in the corporate setting.