Fiduciary Duties: An Overview of the Duty of Disclosure

Key Takeaways

• Delaware duty requires disclosing reliable, advisor‑used projections.
• Speculative projections need not be disclosed.
• Omitted material projections can trigger liability.
• Partial disclosure may mislead reasonable stockholders.
• Boards must also disclose advisor fees, conflicts, merger details.

Pulse Analysis

Delaware courts have long treated the duty of disclosure as a cornerstone of fiduciary responsibility, especially for companies incorporated in the state. By mandating that directors provide all material information to shareholders, the law seeks to prevent information asymmetry that could distort market decisions. Recent guidance from Faegre Drinker underscores that the duty is not a blanket requirement for every forecast; instead, it hinges on the reliability of the projection and its reliance by financial advisors in the ordinary course of business.

Management projections sit at the intersection of strategic planning and securities law. When a board commissions forecasts that are integral to financing arrangements, merger negotiations, or earnings guidance, those numbers become material facts that shareholders are entitled to know. Courts have consistently ruled that speculative or highly uncertain forecasts may be excluded, but any projection deemed reliable and used by a financial advisor must be disclosed. Failure to do so—whether through outright omission or selective sharing—can be deemed a material omission, exposing directors to breach of fiduciary duty claims and potentially triggering shareholder lawsuits.

Beyond projections, the duty of disclosure extends to a broader set of governance matters, including advisor compensation structures, conflict‑of‑interest disclosures, details of merger sale processes, and the criteria for director nominations and removals. Boards can mitigate risk by instituting rigorous disclosure checklists, documenting the basis for each projection, and ensuring that all material information is presented in a clear, non‑selective manner. Proactive compliance not only shields directors from litigation but also reinforces market confidence, which is essential for capital formation and long‑term shareholder value.