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CEOs and fiduciary duty: What can a board expect?

If nothing else, Elon Musk knows how to grab a headline. The tech genius and head of Tesla has been the focus of headline after headline. From Tweets stating private funding was available to buy out Tesla shares to another claiming the price of Tesla stock was too high, these tweets got more than just the public’s opinion—they got the attention of the Securities Exchange Commission (SEC).

The comments led the SEC to move forward with a lawsuit for a securities violation. The lawsuit led to a settlement that included a requirement Musk step down as head of the company and have any social media messages about the organization vetted before getting posted. Investors have stated that his “erratic” actions have hurt the company and are moving forward with a lawsuit against Musk and the board.

The lawsuit provides an opportunity to discuss the duties of the board and CEO of a company. Generally, the board of directors and CEO have a fiduciary duty to shareholders. The CEO also has a duty of care, loyalty, and disclosure. The duty of care entails a responsibility to consider all relevant information before moving forward with a business decision, the duty of loyalty to act in the best interests of the shareholders and the duty of disclosure to fully inform the board of directors and the shareholders about major issues that may face the business.

A failure to meet these duties can result in a breach of the CEO’s fiduciary duties. Shareholders that believe the CEO failed in their role can hold the individual accountable with a lawsuit. This can lead to financial compensation to help cover losses as well as serve as a deterrent for future errors.

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