May 4, 2018

Executive Pay as “Corporate Waste”? Delaware Court Allows Lawsuit

Here’s something that Mike Melbinger blogged recently on

I don’t recall that any court has decided in favor of plaintiffs alleging that the payment of executive compensation was a breach of fiduciary duty for a waste of corporate assets – until now. The reason is that [in the face of the business judgment rule] corporate waste is very difficult to prove. But last week, the Delaware Chancery Court allowed plaintiffs to continue with their shareholder derivative claims against the board of CBS Corporation in Feuer v. Redstone.

This court has commented many times on the difficulty of pleading a viable claim for waste against a corporate director under our law. But the particularized allegations of the complaint here depict an extreme factual scenario—one sufficiently severe so as to excuse plaintiff from having to make a demand on the CBS board of directors to press claims concerning certain (but not all) of the challenged payments, and to permit plaintiff to take discovery so that an evidentiary record may be developed before the court adjudicates whether those payments were made in accordance with the directors’ fiduciary duties.

Two full pages of the opinion are devoted to listing facts and information “demonstrating that it should have been abundantly clear to the members of the Board—from their attendance at Board meetings, press publicity, and other interactions with the Company—that far from being “actively engaged” in the CBS’s affairs, Redstone was providing no meaningful services to the Company beginning at some point in the latter part of 2014 or in 2015.” During and after that period, CBS paid Mr. Redstone more than $13 million, most of it in performance bonuses.

Note that this is far from a complete victory for plaintiffs. The decision only allows the plaintiffs to continue to trial with their lawsuit. But no allegations of compensation being corporate waste have made it this far in more than 30 years.

Happy Anniversary Baby! 16 Years of Blogging & Counting

Today marks 16 years of my blither & bother on this blog (note the Blog is nearly 15 years old – not shabby!). It’s one time of the year that I feel entitled to toot my own horn – as it takes stamina & boldness to blog for so long. A hearty “thanks” to all those that read this blog for putting up with my personality. I’m sure I won’t get more refined with age. So glad to now have John & Liz blogging with me!

Did you know that this is one of the oldest law blogs out there? When I started, nearly all of the few other lawyers that were blogging covered the marketing aspects of blogging – not substantive law. And since those folks wrote the “lists” that covered which lawyers were blogging, they frequently overlooked this blog because they tended to focus on marketing, not law.

Plus, the list compilers tended to be solo or small firm practitioners – they were nowhere near the securities law space. Bob Ambrogi compiled this list in 2007 of the first law bloggers – if he had placed us on the list, we would be the 8th blog to be started. And now we are the third oldest – only two of the 7 blogs started before us are still regularly active.

This blog still is overlooked by those handing out law blogging accolades. Our blog has long dropped out of the ABA’s Blawg 100, even when this blog won the popularity contest the first year they allowed the public to vote (they discontinued public voting soon thereafter). The ABA’s Blawg 100 list rarely includes securities law blogs – and their “Hall of Fame” doesn’t contain a single blog devoted to securities law…

Sexual Misconduct Claims: D&O Policy Implications

This D&O Diary blog delves into how D&O insurance policies might be implicated if claims are made against a company’s directors or senior managers for sexual harassment…

Is it me? Or is “Regulation Best Interest” a dorky name for a SEC regulation? #nerdy. This is something I tweeted when the SEC proposed its new broker regulation about providing investment advice – and nice to see Matt Levine link to my tweet in his Bloomberg article

Broc Romanek