The board of The Weinstein Company fired Harvey Weinstein after decades of sexual misconduct. While the news signals an important shift in perception and tolerance for sexual harassment, it also raises an interesting legal liability question: where exactly is the line when it comes to a corporation's liability for the actions of a CEO?
For The Weinstein Company, the answer to that question is complicated. The board alleges that it didn't know about the allegations, while other reports make it clear that they did. Even so, frequently courts will defer to a board's expertise on a matter such as this, but the number of allegations and their prominence make that difficult. The answer lies in how the plaintiff will argue The Weinstein Company's negligence or failure in regards to duty and knowledge of Weinstein's behavior.
Fiduciary duty explained
The basic concept of fiduciary duty is the requirement of a person or group of people to act in the best interests of another person or group. There are three basic elements to a breach of duty:
- You were in a fiduciary relationship at the time
- The exact duties of the relationship
- The damages occurred as a part of those duties
The bottom line is if damages occurred while you were carrying out your fiduciary duties then you would be open to a lawsuit. If you were found liable you would need to cover those damages, plus any punitive measures.
Protecting your organization
It's hard to prove damages, but not impossible. The key to protecting your organization is being proactive. Listen to the claims of your employees, take every report seriously and constantly reassess your fiduciary duties to stakeholders. If you are concerned that your fiduciary duties could be in breach, contact an experienced business and commercial attorney.