## Facts

- McDonald’s Corporation stockholders brought a derivative action on the company’s behalf.
- David Fairhurst served from 2015 to 2019 as Executive Vice President and Global Chief People Officer, with day-to-day responsibility for human resources and workplace conduct.
- Plaintiffs alleged pervasive sexual harassment and misconduct within the company, including events and complaints that constituted “red flags” requiring action by senior leadership, particularly the chief people officer.
- Plaintiffs alleged Fairhurst consciously failed to monitor, address, or escalate those red flags within his remit.
- Separately, plaintiffs alleged Fairhurst personally engaged in sexual harassment while serving as an officer.
- In 2018, Fairhurst was disciplined for sexual harassment and signed a “Last Chance” letter acknowledging policy violations and risk to the company.
- After additional alleged incidents, the board terminated Fairhurst for cause in 2019.

## Issues

1. Whether Delaware law recognizes a Caremark-type duty of oversight for corporate officers, permitting liability for consciously ignoring red flags within the officer’s area of responsibility.
2. Whether an officer’s own acts of sexual harassment can constitute a breach of the fiduciary duty of loyalty without pleading a separate subjective intent to harm the corporation.

## Decision

- The Court of Chancery denied Fairhurst’s Rule 12(b)(6) motion to dismiss.
- The court held plaintiffs stated a claim that Fairhurst breached an officer-level duty of oversight by consciously ignoring red flags regarding workplace sexual harassment and misconduct within the human-resources function.
- The court held plaintiffs stated a claim for breach of the duty of loyalty based on Fairhurst’s alleged sexual harassment, treating such conduct as bad-faith disloyalty without requiring allegations of an additional intent to harm the company.

## Legal Principles

- Corporate officers owe fiduciary duties of care and loyalty comparable to those owed by directors; the duty of loyalty includes a duty of oversight.
- An officer’s oversight duty is context-specific and focuses on matters within the officer’s area of responsibility; officers must address red flags or report them upward.
- The Caremark pleading framework applies to officers: liability requires bad-faith conduct, such as an utter failure to implement controls within the officer’s domain or a conscious failure to monitor and respond to red flags.
- Sexual harassment by a corporate fiduciary, committed in the course of employment, can constitute bad-faith conduct and support a loyalty claim because it is disloyal to the corporation and exposes it to legal and reputational harm; a separate intent-to-harm allegation is not required.

## Conclusion

The court recognized that Delaware fiduciary law can impose Caremark-style oversight liability on corporate officers for bad-faith inattention to red flags within their responsibilities and held that an officer’s workplace sexual harassment may itself plead a breach of the duty of loyalty.


In re McDonald’s Corp. S’holder Derivative Litig., 289 A.3d 343 (Del. Ch. 2023)