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Jones Day imparted key takeaways from In re Clovis Oncology, Inc. Derivative Litig., C.A. No. 2017-0222-JRS (Del. Ch. Oct. 1, 2019) concerning board oversight responsibilities and the heightened risk of Caremark liability in the context of compliance with regulatory requirements that govern a company's "mission critical" operations, which in this case involved the clinical trial of a new drug deemed "intrinsically critical" to the company's future prospects.   

Citing and explaining the Marchand v. Barnhill case (recently reported on here), the Clovis Court stated (emphasis added):  

Our Supreme Court’s recent decision in Marchand v. Barnhill underscores the importance of the board’s oversight function when the company is operating in the midst of “mission critical” regulatory compliance risk. The regulatory compliance risk at issue in Marchand was food safety and the failure to manage it at the board level allegedly allowed Blue Bell Creameries to distribute mass quantities of ice cream tainted by listeria. The Court held that Blue Bell’s board had not made a “good faith effort to put in place a reasonable system of monitoring and reporting” when it left compliance with food safety mandates to management’s discretion rather than implementing and then overseeing a more structured compliance system.

As Marchand makes clear, when a company operates in an environment where externally imposed regulations govern its “mission critical” operations, the board’s oversight function must be more rigorously exercised. Key to the Supreme Court’s analysis was the fact that food safety was the “most central safety and legal compliance issue facing the company.” To be sure, even in this context, Caremark does not demand omniscience. But it does demand a “good faith effort to implement an oversight system and then monitor it.” This entails a sensitivity to “compliance issue[s] intrinsically critical to the company[].”