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  “By way of analogy, a captain of a ship cannot evade responsibility for a wreck by saying, ‘I let somebody else steer.’”

  David Westbrook

  Floyd H. & Hilda L. Hurst Faculty Scholar, UB Law School

  
  

By PATRICIA DONOVAN

Published: August 9, 2012

Mitt Romney “absolutely was legally responsible” for the actions of Bain Capital after he “retired” from the company in 1999 to run the Utah Olympics, says David Westbrook, a UB legal scholar and recognized voice in corporate, contract and international law.

Westbrook, professor of law and Floyd H. & Hilda L. Hurst Faculty Scholar in the UB Law School, points out that after his “retirement,” Romney remained chairman of the board of directors, chief executive officer and sole shareholder of Bain Capital.

“As a matter of Delaware law,” says Westbrook, “Romney was legally responsible for the management of Bain, which is a Delaware corporation, for so long as he was a director of the company and a member of top management, positions he continued to hold well beyond 1999.”

Romney has not denied that he held corporate offices in Bain during the period in question. However, he says his offices were nominal, others were actually running the company and, therefore, he cannot be blamed for Bain’s operations during the period in which the corporation was responsible for outsourcing jobs at companies it controlled.

“Understandably, many people find it hard to believe Romney’s claims that he was not responsible for a company over which he had complete control and from which he profited mightily,” says Westbrook.

But he says that despite the confusion and obfuscation, “Delaware law is clear in this matter. Corporate directors and managers must fulfill their fiduciary duties of care and oversight; that is, those who hold those offices are responsible for the management of the company.

“One cannot evade such responsibility by simply saying, as Romney has, that other people were in fact running the company during the period,” Westbrook says.

“By way of analogy, a captain of a ship cannot evade responsibility for a wreck by saying, ‘I let somebody else steer.’ Somebody else may have been steering; the captain is still responsible.”

From a legal perspective, Westbrook says The Washington Post’s “Fact Checker” and others are wrong to focus on what Romney was “actually managing” and wrong to argue that “chief executive officer” is mere boilerplate because it is not a defined term at securities law.

“Federal securities law routinely imposes duties on directors and top management, whose roles are defined by state corporate law,” he says.

“It is true that, in response to a case called Smith v. Van Gorkom, Delaware has allowed corporations to amend their charters to relieve directors from liability for failure to fulfill their ‘duty of due care,’ so long as they acted in ‘good faith’ and in accordance with the law and their ‘duty of loyalty to the corporation,’” says Westbrook.

“However, subsequent cases, including Caremark and Stone v. Ritter, have made it clear that ‘good faith’ and the ‘duty of loyalty’ mean that directors cannot completely abdicate their responsibility as directors,” he says.