In Stein v. Blankfein, C.A. No. 2017-0354-SG (Del. Ch. May 31), the Delaware Court of Chancery issued one of its first opinions addressing director compensation following the Delaware Supreme Court’s ruling in In re Investors Bancorp Stockholder Litigation, 177 A.3d 1208 (Del. 2017), that stockholder approval of a compensation plan may only “ratify” future director awards if the board is left with no further discretion in awarding grants under the plan. Applying Investors Bancorp, the court in Stein declined to dismiss a challenge to discretionary director awards. The court nevertheless dismissed related disclosure claims, including those seeking to invalidate past equity grants, in accordance with the Delaware courts’ preference for disclosure claims to be pressed pre-closing.
Stein involved challenges to the fairness of the compensation of The Goldman Sachs Group Inc.’s nonemployee directors and the past approval of its stock incentive plans. With respect to the former, the plaintiff alleged that the nonemployee directors fixed their own compensation, subjecting these decisions to the entire fairness standard. Despite acknowledging that stockholder approval of the plan did not “ratify” future discretionary awards, the defendants moved to dismiss, arguing that the terms of the plan—which purported to absolve the directors of liability for future breaches of duty in administering the plan absent bad faith—caused the stockholders to have waived their right to bring such claims by approving the plan. The court rejected this argument, explaining that waivers only relinquish known rights and that additional detailed disclosures would have been necessary for the stockholders to have waived their right to challenge discretionary decisions under the plan. The court then cast doubt on the viability of such a waiver even with these disclosures, citing, inter alia, the difference between Delaware’s statutes governing corporations, which do not permit modifications of fiduciary duties or exculpation for breaches of the duty of loyalty, and those governing alternative entities, which give parties the contractual freedom to modify fiduciary duties and provide such exculpation.
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