Directors of Delaware corporations have long enjoyed protection from personal liability for breaches of the duty of care. Delaware has enacted statutes allowing corporations to provide an array of protections to their directors—including liability insurance, indemnification, and statutory exculpation under Section 102(b)(7). In contrast, officers of Delaware corporations have not received the same statutory protection under Delaware law, even though the Delaware Supreme Court held in Gantler v. Stephens in 2009 that corporate officers owe the same fiduciary duties as directors.
Section 102(b)(7) was enacted in 1986 as a response to the Director and Officer (“D&O”) insurance crisis and authorizes corporate shareholders to exculpate directors from personal monetary liability for breaches of the duty of care through an opt-in clause in the corporation’s charter. Following its enactment, director exculpation statutes became commonplace in the United States. In August 2022, the Delaware General Assembly amended Section 102(b)(7) to authorize corporations to exculpate officers from personal liability for a breach of the duty of care in direct (but not derivative) lawsuits. Part I of this Comment explores the history of Section 102(b)(7), the reasons officers were originally excluded, and the problems that arose as a result of their exclusion. Part II discusses the 2022 amendment to the charter-option statute, including how to opt-in to the provision, the mechanics of the statute, its implications on fiduciary duty law in Delaware, and how Delaware’s amendment compares to other states’ statutory frameworks for officer liability. Part III explains why shareholders benefit from adopting officer exculpation provisions in their corporate charters. The Comment concludes with recent developments and an outlook to the future.
