Is a business responsible for the actions of its chief officers?
The CEO of Lumber Liquidators, Robert Lynch, abruptly resigned last week after three years on the job amidst a Justice Department investigation. Lynch also served as the company’s president and director.
The company recently announced the Justice Department is seeking criminal charges against it after an investigation over flooring products it imported from China. The laminate flooring reportedly contained a high level of formaldehyde. The company recently suspended sale of its entire laminate flooring inventory made in China pending a review of its sourcing compliance program by a board committee.
After discovering the chemical issue in the laminate flooring, Lumber Liquidators sent out free air testing kits for consumers who installed the flooring. More than 97% of those customers who used the kits reported the level of formaldehyde concentration in the air was within the World Health Organization Guidelines. The company also stopped buying Chinese laminate flooring and is purchasing the product from Europe and North America. In the wake of Lynch’s departure, the company stated that its founder, Thomas Sullivan would take over as CEO until a replacement is found. Lumber Liquidators refused to comment on the resignation.
Certain officers and board members of companies have a fiduciary duty to the company’s shareholders. This means the officer is required in some situations to disclose particular information and knowledge to shareholders. It is important for companies to have clear policies for its fiduciaries for disclosing information and to research the officers’ and board members past employment and potential conflicts of interest to avoid potential lawsuits.
If you own a business, avoid a lawsuit for the actions of an officer by contacting an attorney to review business policies and disclosure requirements. The law firm of Willcox, Buyck & Williams has been in business for over 120 years and its business and corporate law attorneys have extensive experience in preparing corporate papers, managing fiduciary requirements, and representing clients in business disputes. They have offices in Florence (843) 536-8050 and Myrtle Beach (843) 461-3020. Contact them today for a consultation.