Editor’s Note (January 29, 2026): At the authors’ request, the following paragraph has been added to reflect recent developments in Delaware law:

On January 16, 2026, the Court of Chancery issued its decision in Los Angeles City Employees’ Retirement System v. Sanford (“eXp”), which pointedly rebukes the Credit Glory decision. In eXp, Chancellor Kathaleen St.J. McCormick held, at the pleading stage of litigation, that the defendant directors and officers of eXp World, a real estate company, may have breached both their duty of loyalty, and their Caremark duties of oversight, by permitting, allegedly, rampant drugging and raping of the company’s real estate agents by its other agents. Based on eXp, the court’s jurisprudence is in flux as to whether sexual misconduct in the workplace should be viewed as personal misconduct governed by employment laws or, instead, may implicate directors’ and officers’ fiduciary duties.

In Brola v. Lundgren (Dec. 1, 2025), the Delaware Court of Chancery held that a director-officer’s sexual harassment of employees, which resulted in fines and other damages to the corporation, constituted personal misconduct and not a breach of his fiduciary duties to the corporation and its shareholders. Accordingly, the director-officer was not personally liable to the corporation for its losses. The decision thus limits the reach of the court’s 2023 seminal McDonald’s decision.

Key Points

• A corporate officer’s sexual harassment of employees will not constitute a breach of fiduciary duties except under limited circumstances. Based on Brola, unless the officer’s corporate duties specifically included responsibility for ensuring against sexual harassment of employees, it is unlikely that his or her sexual harassment of employees would constitute a fiduciary breach.
• The decision limits the McDonald’s decision. In McDonald’s, the court had held that an officer’s sexual harassment of employees violated his fiduciary duty of loyalty, as it was “selfish” conduct in which he engaged for his own personal gratification. In Brola, the court expressed the need for a “limiting principle” on this logic, lest every workplace misdeed based on personal interests— whether “a breakroom fistfight, a defamatory social media post, or theft of office supplies”—would constitute a fiduciary breach.
• The decision will make it more difficult for plaintiffs to bring derivative actions against corporate officers who commit sexual harassment. Corporate officers who commit sexual harassment may be liable for sexual harassment under employment-related statutes, laws of the jurisdiction where the injury occurred, and/or contractual obligations to the company, but, except where their corporate duties specifically include preventing sexual harassment of employees, they should not be liable to the corporation for a breach of fiduciary duties.