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Risk Management Duties and Liabilities at the Top

Author:  Robert Clark
Product Number:  HLS 13-20
Publication Date:  June 25, 2013
Length:  9 pgs
Cost per Copy:  $10.00

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In this role-play case study, participants put themselves in the shoes of a law firm attorney who has been tasked with advising a potential board member of Mushy Middle Pizza Corp. (MMP), a publicly traded Delaware corporation listed on NASDAQ. The company recently settled two class-action lawsuits brought against MMP and its directors for serious dental and esophageal injuries allegedly suffered by hundreds of customers who bit into foreign objects when they ate MMP pizzas. The suits were eventually settled for a total of $100 million, and the company was made to establish a separate Risk Management Committee and hire a Chief Risk Officer. The potential board member is concerned that there are systemic issues with MMP’s leadership or risk management practices, and that he may be personally liable should further actions be taken against the company. In advising the potential board member, participants must consider the risk of potential personal liability on the part of a director for a failure to manage or oversee company risks.

Included in this case study are excerpts from the 2006 Delaware decision Stone v. Ritter, 911 A.2d 362 (Del. 2006)). Participants are asked to draw conclusions from this decision to inform their advice to the potential MMP board member. This case study is part of a series that also includes An Unusual Executive Compensation Plan and Can a Management Team and a Board Just Say No?.

Learning Objectives
This case study covers many important aspects of corporate governance, such as oversight liability standards, and the fiduciary duties of care, loyalty, and good faith. As participants put themselves in the shoes of an advising attorney, they must balance the desire of the potential board member to join MMP’s leadership against the goal of protecting him from potential class-action lawsuits.

Subjects Covered
Corporate Governance
Shareholder Lawsuits
Risk Management

Geographic: United States
Industry: Food Services
Event Year Begin: 2013

See Also
An Unusual Executive Compensation Plan
Can a Management Team and a Board Just Say No?


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