We previously wrote about the decision by former Vice Chancellor Donald F. Parsons in OptimisCorp v. Waite, C.A. No. 8773-VCP (Del. Ch. Aug. 26, 2015), concerning several of its substantive holdings relating to breach of fiduciary duty claims. Among them, Parsons rejected the claim that directors breached their duty of loyalty when they failed to provide advance notice to a director/CEO with board-appointment rights under a stockholder agreement of their intent to remove him so that he could not first exercise those rights to thwart their plans. To hold otherwise, Parsons wrote, would potentially create a “super-director,” raise serious entrenchment problems, and undermine the board’s chief function to appoint corporate officers, particularly the CEO, to manage the day-to-day affairs of the company. We commented that “entrenchment” and the ability to control the composition of the board, and thus indirectly affect the day-to-day management of the company, were the raisons d’etre of a stockholders agreement granting board-appointment rights. After noting that the decision had been appealed, we questioned how Parsons’ disposition of the fiduciary duty claims would fare, particularly his rejection of prior cases suggesting that a controller with board-appointment rights was entitled to fair notice and an opportunity to exercise those rights before any adverse action was taken against him.
The Delaware Supreme Court has now provided its answer. In a nine-page order affirming the judgment of the Court of Chancery, the court expressly declined to embrace Parsons’ framework for analyzing whether the defendant directors behaved inequitably by intentionally concealing from the CEO and other directors their intention to remove the CEO and amend the stockholder agreement.
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