July 27, 2012
Authored by: benefitsbclp
In a decision released on June 29, the Delaware Chancery Court (a trial court) in Seinfeld v. Slager (no, not that Seinfeld) allowed an allegation of corporate waste to survive a motion to dismiss. The allegation: that directors wasted corporate assets by granting themselves restricted stock units in an excessive amount. The case is significant in part because the court is widely regarded as a leading court on corporate governance issues.
This case is interesting because, most often, compensation of non-employee directors is protected under the “business judgment rule” that basically prevents courts from second-guessing the decisions of a board of directors. However, the business judgment rule is generally not available for transactions where directors have a financial interest that could reasonably compromise their independent judgment. In asserting the protection of the business judgment rule, the directors argued that the stock plan under which the awards