February 13, 2024
Delaware: Review of 2023 Developments
If you work with public companies, it’s essential to keep up not only with what’s going on with the SEC, the FTC and any other federal regulator that’s relevant to the company’s business, but also with developments in the Delaware. Those often come fast & furious, so it’s helpful to have a resource like this Wilson Sonsini report addressing Delaware corporate law & litigation developments. Here’s an excerpt from the report’s discussion of oversight claims:
As to board obligations, some of the 2023 cases from Delaware reinforced the traditional approach that oversight claims against boards are difficult theories for plaintiffs, that directors will not face exposure merely for making risky business decisions, and that directors, even if confronted with a crisis, will not be liable if they have taken appropriate steps from a fiduciary duty standpoint.
In one case, the Delaware Court of Chancery concluded that the plaintiffs were “nowhere close” to pleading oversight claims against the directors of an insurance company. There, the insurance company had shifted its business practice of underwriting professional liability insurance policies for smaller, lower risk physician groups in favor of underwriting policies for larger, riskier physician groups and hospitals, which created difficulty in calculating the company’s required loss reserves.
After the shift, the company struggled with forecasting the number and severity of claims, which resulted in a significant drag on the company’s performance. The court dismissed the oversight claims, noting that the facts suggested the board and audit committee had indeed spent significant time evaluating the business risk associated with the strategy shift and there was no indication that any of the directors had acted in bad faith.
The memo also addresses decisions dealing with M&A issues, ESG & corporate purpose, dual-class structures and controlling stockholders, and advance notice bylaws and activism. It also covers the 2023 amendments to the DGCL.
– John Jenkins