Independent director duties and shareholder litigation at Nasdaq issuers
By Martin Chan, Consultant, TITUS Solicitors
Law and regulatory materials as at 11 November 2026
On 8 November 2026, NVIDIA's board announced an investigation into reports concerning its chief executive, Jensen Huang, overseen by a committee of independent directors with independent outside counsel. A proposed securities class action was filed the following day. On 10 November, the independent directors announced that they had retained Joon H. Kim and Wachtell, Lipton, Rosen & Katz to conduct the investigation. The allegations remain untested. The board had announced its investigation before it had findings to report, and its first public statement was already part of the material investors and their lawyers could examine. NVIDIA board statement, Kistenmacher v. NVIDIA Corporation, 10 November update
For an independent director, this is an uncomfortable point at which to take decisions. Management may hold most of the information. The market wants an answer. The committee needs time to establish what happened, but the board still has to decide what the company can responsibly say now.
A board can appoint its advisers, decide who receives their findings and insist on evidence before approving a statement. Those decisions will also create the record by which its conduct is later judged. Recent Delaware decisions, changes to shareholder inspection rights and SEC enforcement findings make that record worth close attention.
For a Nasdaq issuer with Hong Kong or Mainland connections, start by asking U.S. counsel which rules apply to this particular company. Incorporation determines much of the fiduciary duty analysis. Foreign private issuer status changes the reporting obligations. The discussion below uses those distinctions to frame the decisions facing the independent directors.
Give the independent directors authority to investigate
Where allegations concern the chief executive, the board needs a process through which independent directors can obtain advice and information without depending on that executive's approval. Agree the committee's mandate, its access to staff and documents, and who can instruct its lawyers. A committee also needs a way to resolve a refusal to provide information.
Check relationships before choosing members. A director may satisfy the exchange's independence rules while having a connection with the person under investigation that merits closer examination. Past employment, investments and professional relationships should be disclosed to counsel. Decide with counsel who can see investigation papers and how access restrictions will be enforced, taking account of directors' information rights and privilege.
Nasdaq's rules generally provide for regular executive sessions of independent directors, subject to permitted foreign-private-issuer home-country practices. Rule 10A-3 gives an audit committee authority to engage independent advisers and requires procedures for accounting-related complaints, subject to applicable exceptions. Ask counsel whether the audit committee should handle the particular matter or whether a separate committee with a different mandate is needed. Nasdaq Rule 5605, Rule 10A-3
The information must reach the people making disclosure decisions. In its settled Activision Blizzard order, the SEC found deficiencies in how employee complaints about workplace misconduct were collected and analysed. Management consequently lacked information needed to assess disclosure. The company paid US$35 million to settle charges that also concerned agreements impeding whistleblower communications. The SEC's findings were made without admission or denial. For a board reviewing complaints, ask who receives them, how patterns are identified and when the disclosure team is told. SEC Activision Blizzard findings
For a board whose members and staff work in several jurisdictions, agree with counsel how the committee will obtain and hold investigation records. Check translations of interview summaries and documents before relying on them. If statements are released in English and Chinese, have the committee's advisers check that both versions convey the same findings and qualifications. These arrangements belong in the investigation plan, while the team is deciding how information will reach the directors.
Check the basis for every reassurance
A securities class action examines statements made to investors. A derivative action is brought on the company's behalf and may challenge the directors' oversight or handling of conflicts. The same board papers can matter in both proceedings, although the causes of action and legal tests differ.
For a private Rule 10b-5 claim, a claimant must establish more than an inaccurate statement. The requirements include materiality, the necessary state of mind, reliance and loss causation. The Supreme Court's 2024 Macquarie decision held that a pure omission is outside Rule 10b-5(b), while a statement made misleading by omitted information can be actionable. That distinction matters when the board chooses to speak during an incomplete investigation. Halliburton v Erica P. John Fund, Macquarie v Moab Partners
Before approving a reassurance, ask counsel and the investigators what supports it. Record what they have checked, what remains open and whether the wording could suggest that more work has been done than is the case. The Supreme Court examined misleading statements of opinion in Omnicare, a Section 11 case. Its application to a different cause of action requires advice on the relevant law. For the director reading a draft, the immediate task is to understand the basis for the belief being expressed. Omnicare v Laborers District Council
The SEC's Boeing case shows how reassurance can create separate exposure. After the 737 MAX accidents, the SEC found that Boeing and its then chief executive made misleading statements about safety despite internal information identifying an ongoing safety issue. Boeing agreed to pay US$200 million and the former chief executive US$1 million to settle negligence-based antifraud charges, without admitting or denying the findings. These were SEC proceedings, with different requirements from a private fraud claim. SEC Boeing findings
Responsibility for a statement also needs individual analysis. Under Janus, the maker for Rule 10b-5(b) purposes is the person or entity with ultimate authority over it. Issuing a statement in the board's name does not automatically make every director its maker. Lorenzo addresses intentional dissemination under other parts of Rule 10b-5, and control-person liability raises further questions. Counsel should review each director's role in preparing and approving the communication. Janus, Lorenzo, Section 20(a)
For an IPO candidate or recent issuer, check the registration statement as well. Section 11 can expose directors to claims over material defects without requiring proof of scienter, subject to the claimant's eligibility and the applicable defences. The due diligence defence gives directors a reason to document their investigation while it is taking place. U.S. counsel should assess the particular offering and securities involved. Section 11
What changed between the two Boeing oversight cases
Delaware's Caremark doctrine concerns a board's good-faith effort to establish and use systems for overseeing important legal and compliance risks. Liability requires bad faith. A commercial failure alone does not establish bad faith.
The 2021 Boeing decision allowed oversight claims against the directors to proceed after the 737 MAX accidents. The complaint alleged that the board had no committee directly responsible for airplane safety and no regular process requiring management to report safety information to it, although safety was central to the business. At that stage, the court was assessing pleaded allegations. Liability remained to be determined. 2021 Boeing decision
The litigation settled with governance reforms that included an independent Aerospace Safety Committee and reporting arrangements. Following the January 2024 door-plug incident, shareholders brought further oversight claims. In August 2026, the Court of Chancery dismissed the new complaint for failure to plead demand futility. The complaint described regular safety and compliance reporting and a board that discussed safety at every meeting. The court distinguished general risks from red flags pointing to a specific corporate trauma. Its decision addressed the pleading threshold for proceeding without first making a demand on the board. 2026 Boeing decision
Both cases concerned Boeing and airplane safety. The records described different oversight arrangements. A board preparing for a crisis should be able to identify which committee owns the relevant risk, what information it receives and how it follows up. After an incident, the independent directors need to test whether that reporting arrangement worked and decide what must change.
In Marchner v Riley, the Court of Chancery dismissed claims arising from investments that later failed. It distinguished imperfect investment diligence from bad faith and declined to impose a duty to monitor a separate company's internal compliance. The plaintiff has appealed. Counsel should identify the legal or compliance risk allegedly overlooked before treating a commercial loss as an oversight case. Marchner v Riley
Independence and the formal board record carry more weight
Delaware's 2025 changes to Section 144 give certain exchange-based independence determinations a heightened statutory presumption in the context of conflicted transactions. The provision has conditions, including additional requirements concerning controlling stockholders. When a crisis involves an executive's interests, ask Delaware counsel whether Section 144 is engaged and what process it requires. A general crisis committee's mandate and independence need their own assessment. Delaware Section 144
In Ayers v Foley, the Court of Chancery applied the presumption in considering whether shareholders could proceed without first making demand on the board. Claims about a grant to the founder were dismissed. The fiduciary-duty claims about directors' own compensation survived against the approving committee members, and unjust enrichment claims survived against all director defendants who received the challenged compensation. A board should revisit conflicts for each decision, particularly when the investigation leads to an executive's departure or compensation settlement. Ayers v Foley
Dodiya v Franklin concerned a different failure. The complaint alleged that a former chief executive had disclosed confidential information to his father's firm, yet regained access to board materials. Although a majority of directors were found disinterested, the court declined to apply the statutory safe harbour at the pleading stage. Claims proceeded against two directors. Other directors were dismissed because the allegations concerning their process were insufficient to plead bad faith. The decision shows why a committee must follow through on access restrictions and check the accuracy of disclosures about who participated. Dodiya v Franklin
Section 220 was also changed in 2025. It now defines categories of inspectable records that include board minutes, relevant board materials and independence questionnaires. The statute provides for functional equivalents when specified formal records are missing, and sets a demanding test for other records. Ask counsel how the amended provisions affect preservation and a particular inspection demand. Delaware Section 220
Minutes should show the material considered, the questions raised and the decisions taken, with responsibility for follow-up. Keep the papers on which the board relied. Section 141(e) protects qualifying good-faith reliance on officers, committees and carefully selected experts. A contemporaneous record helps demonstrate what that reliance involved. Counsel should direct preservation across email and messaging applications as well as the formal board portal. Delaware Section 141(e)
Establish the issuer's reporting obligations before the next announcement
A Nasdaq listing does not make every issuer subject to the same reporting timetable. A Cayman-incorporated company may qualify as a foreign private issuer, but that status needs to be established under the SEC's tests. Separately, the law of incorporation generally governs fiduciary duties. Delaware oversight decisions provide a useful comparison for an offshore board whose own law requires separate advice.
| Issue | What the board should establish with U.S. counsel |
|---|---|
| Departure of a director or chief executive | Domestic issuers generally report specified departures under Form 8-K Item 5.02 within four business days. A foreign private issuer uses the applicable Form 6-K framework. |
| Disclosure by a foreign private issuer | Form 6-K requires prompt furnishing of qualifying material information made public under home law, made public through an exchange, or distributed to security holders. Establish the trigger for the particular announcement. |
| Selective disclosure | Regulation FD excludes foreign private issuers. Domestic issuers must assess its requirements. Both need advice on antifraud exposure and the consistency of public communications. |
| Nasdaq disclosure and governance | Check Rule 5250's prompt disclosure requirements and MarketWatch notification procedures. Identify any permitted home-country governance practices actually used by the issuer and the requirements that still apply. |
Form 8-K, Form 6-K, Regulation FD, Nasdaq Rule 5250, Nasdaq Rule 5615
Ownership reporting has changed for foreign private issuers. Since 18 March 2026, directors and officers of an FPI with Section 12-registered equity securities are subject to Section 16(a) reporting, subject to applicable exemptions. The SEC has granted relief linked to qualifying foreign reporting regimes. The relief is available only to FPIs incorporated or organised in a listed jurisdiction. As at the date of this article, the SEC's exemptive orders do not cover Hong Kong, Mainland China or the Cayman Islands. Confirm each insider's position, filing access and dealing restrictions before a crisis puts a trade under scrutiny. SEC Section 16(a) guidance and exemptive orders
For Hong Kong and Mainland-linked IPO candidates, Nasdaq's May 2026 changes add a separate eligibility question. The approved rules cover companies headquartered, incorporated or principally administered in China, including Hong Kong and Macau, and require at least US$25 million in gross proceeds to the company through a U.S. firm commitment IPO offered to public holders. Nasdaq considers the administration factors holistically. Check the company's position against the rule during preparation. These requirements can affect a proposed listing before the board reaches any crisis. SEC approval of Nasdaq changes
Follow the investigation through to remediation
Decisions about an executive's departure can create fresh disclosure issues. In the McDonald's settlement, the SEC found that the company failed to disclose its exercise of discretion in treating its chief executive's termination as without cause. That treatment allowed him to retain compensation. The former executive was also charged over misleading statements concerning his termination. The SEC imposed no penalty on the company, crediting cooperation and recovery of compensation. Two Commissioners dissented from the company charges. The findings were made without admission or denial. SEC McDonald's findings, Commissioners' dissent
Have counsel review the employment terms and recovery rights before the board agrees a departure package. Rule 10D-1's mandatory recovery regime is tied to accounting restatements. Recovery for other misconduct depends on the relevant contractual or legal rights. Preserve those rights while establishing the facts. Rule 10D-1
Remediation should have a timetable and an owner. In its fiscal 2026 results, published on 10 November, the SEC identified cooperation and prompt remediation as factors in charging and penalty decisions. It cited the absence of civil penalties for Ammo, now Outdoor Holding Company, in a disclosure and financial reporting settlement involving extensive remedial steps. The release also described no-penalty outcomes for other cooperating issuers. These are decisions on particular facts, but they give a board a reason to address known weaknesses while the investigation continues. SEC fiscal 2026 enforcement results
At the next committee meeting, request a written update showing what has been established, which disclosure decisions need revisiting and whether agreed changes have been implemented. Ask counsel about regulatory engagement and notify the D&O insurers in accordance with the policy. Keep the committee's authority, access to information and reporting arrangements under review until its work is complete.
For Hong Kong boards and IPO candidates reviewing corporate governance arrangements, committee mandates or coordination with overseas advisers, contact TITUS Solicitors.
This article is for general information only. It is commentary by a Hong Kong solicitor based on publicly available statutes, rules, court decisions and regulatory materials, and refers to allegations that have not been tested in court. It is not legal advice and does not create a solicitor and client relationship. Neither the author nor TITUS is qualified to practise law in the United States or in any U.S. state, and nothing in this article is, or should be relied on as, advice on U.S. federal or state law, including the laws of Delaware. Matters of U.S. law, or the law of any other jurisdiction outside Hong Kong, should be referred to appropriately qualified counsel in that jurisdiction.