In a recent decision by the Delaware Supreme Court, Appel v. Berkman, No. 316, 2017 (Del. Feb. 20), the court held that a board’s failure to include information about the chairman of the board’s reasons for abstaining on the vote rendered the proxy statement materially misleading. This decision serves as a stark reminder that boards of directors should carefully consider whether to disclose in a proxy statement the reasons for a director’s abstention on a vote to approve a sale.

Background

Diamond Resorts International was founded by Stephen Cloobeck in 2007, and he served as its chairman and CEO from inception through December 2012. When the company went public in 2013, he continued to serve as the company’s chairman. In early 2016, the board of Diamond Resorts began considering strategies for the future of the company, including the potential for its sale. The board received several indications of interest, and ultimately received two bids— one from the ultimate purchaser, Apollo Global Management, and the other from “Sponsor B.” The board voted in favor of the sale to Apollo; however, Cloobeck abstained from voting and expressed his reason for it in two separate board meetings. As described in the company’s meeting minutes: he was disappointed with the price and the company’s management for not having run the business in a manner that would command a higher price, and that in his view, it was not the right time to sell the company.

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