The Delaware Supreme Court recently ruled on the duties of directors of Delaware corporations who are appointed by particular stockholders. In OptimisCorp v. Waite, Del. Supr., No. 523, 2015, Order (April 25, 2016), Delaware’s high court issued a nine-page Order with several substantive footnotes that provide practical insights for those who need to know what the rights and obligations are of directors who are appointed, for example, by written agreement as a condition of an investment in a company. These members of the board are sometimes referred to as “blockholder directors”, as in a director appointed by someone who owns a block of stock.

The Order affirmed a 213-page opinion by the Court of Chancery that also explored the dark corners of “witness tampering”. See OptimisCorp v. Waite, C.A. No. 8773-VCP (Del. Ch. Aug. 26, 2015). Despite the affirmance of the result, the Supreme Court disavowed the Court of Chancery’s reasoning on the “super-director” theory, and neither endorsed the trial court’s view, nor expressed any controlling opinion, about the part of the lower court’s decision relating to the substance or agenda of a board meeting being selectively withheld from a particular director–especially when the stockholder who appointed that director might have exercised his majority power prior to the meeting to avert an ambush.

Nonetheless, for anyone who needs to know, or is interested in, Delaware law on blockholder directors, as well as witness tampering, this gem-filled ruling is useful for its latest iterations of the Supreme Court’s perspective on these topics. A few selected quotes from the decision follow:

  • “… we are reluctant to accept the notion that it vindicates the board‘s right to govern the corporation to encourage board factions to develop Pearl Harbor-like plans to address their concerns about the company‘s policy directions or the behavior of management. Rather, it has long been the policy of our law to value the collaboration that comes when the entire board deliberates on corporate action and when all directors are fairly accorded material information.8”
  • Footnote 8 is eminently quotable:

“See, e.g., Lippman v. Kehoe Stenograph Co., 95 A. 895, 899 (1915) (Each member of a corporate body has the right to consultation with the others and has the right to be heard upon all questions considered . . . .(citation omitted)); id. at 897 ([T]here is a deeper reason [for not permitting directors to act by proxy] based on the association of each director with each of the others, of which association none of the associates can divest himself while remaining a member. In other words, a director cannot authorize any one to act for him, because his associates are entitled to his judgment, experience and business ability, just as his associates cannot deprive him of his rights and powers as director.); Hall v. Search Capital Grp., Inc., 1996 WL 696921, at *2 (Del. Ch. Nov. 15, 1996) (Absent a governance agreement to the contrary, each director is entitled to receive the same information furnished to his or her fellow board members. (citation omitted)); see also J. Travis Laster & John Mark Zeberkiewicz, The Rights and Duties of Blockholder Directors, 70 BUS. LAW. 33, 35 (2015) (Delaware corporate law embraces a board-centric model of governance. This model expects that all directors will participate in a collective and deliberative decision-making process.); id. at 41 (Given that the DGCL allocates fundamental decision-making power to the board as a whole, and not to any individual director qua director, all directors must have the opportunity to participate meaningfully in any matter brought before the board and to discharge their oversight responsibilities. In more granular terms, directors must be afforded, at a minimum, (i) proper notice of all board meetings, (ii) the opportunity to attend and to express their views at board meetings, and (iii) access to all information that is necessary or appropriate to discharge their fiduciary duties, including the opportunity to consult with officers, employees, and other agents of the corporation.).”

  • “… we do not embrace the Court of Chancery‘s framework for analyzing whether the defendant directors behaved inequitably by intentionally concealing from Morelli and other directors their intention to amend the stockholders agreement. That framework seems to assume that if all directors are required to be given fair notice of the agenda for a special meeting, a director with board appointment rights might in some cases use them, and thereafter elect new directors. That might, of course, happen. But if those directors breach their fiduciary duties, our law has potent remedies that the other stockholders can seek.7”
  • “When a board faction calls a special meeting, and is dishonest about its intention to use that meeting to alter a stockholder‘s board appointment rights, the Court of Chancery‘s analysis should involve a considered evaluation of whether intentional duplicity toward fellow board members is consistent with the fiduciary duties those directors owe to the company and its stockholders, including stockholders who are entitled to rely upon stockholder agreements executed in conformity with the DGCL.10  Biasing that analysis by describing it as involving the creation of a class of super directors is unhelpful. Although it may be that directors who own large amounts of stock and have considerable voting power are entitled to no more fair notice than independent directors, surely they are entitled to equal treatment and we doubt that one would label independent directors super directors if they complained after being blindsided by a board majority at a special meeting. Our law should develop in future cases when the outcome turns on it.” [i.e., not this case.]