Do Corporate Boards Necessarily Breach Their Fiduciary Duties When They Approve Illegal Conduct?

Allen Matkins Leck Gamble Mallory & Natsis LLP

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In a recent blog post on the Business Law Prof Blog, Tulane Law professor Ann M. Lipton opined

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In a recent blog post on the Business Law Prof Blog, Tulane Law professor Ann M. Lipton opined:

As Ipreviously explained in connection with the shareholder derivative claims against Fox Corp.,corporate boards are prohibited from engaging in illegal conduct,even if they conclude it's ex ante beneficial for the company. That is, they arenot permittedto make a calculation that, given the expected benefits and the likelihood of detection, it is in fact profit-maximizing to break the law.

I can think of at least one exception to this rule. Cannabis is legal in many states. The California Secretary of State even promotes the Cannabis industry on its Cannabizfile portal which provides information relevant to cannabis-related business and trademark filings.

Cannabis nonetheless remains illegal under federal law and may be prosecuted under the Controlled Substances Act. See 21 U.S.C. § 844(a). Thus, the assertion that directors may not authorize illegal corporate conduct may be subject to ade facto "Cannabis exception".

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