There is a growing consensus among federal courts that, under
Delawarelaw, a negative shareholder say-on-pay vote does not rebut the business judgment rule presumption normally accorded to a company’s board of directors. Applying Delawarelaw, a federal judge (ND Ill) ruled that a negative shareholder advisory vote on executive compensation did not rebut the business judgment rule and excuse demand in a shareholder derivative action alleging a breach of fiduciary duty by company directors. Section 951 of the Dodd-Frank Act requires public companies to allow a shareholder advisory vote on executive pay at least once every three years. According to the court, the plain language of the statute makes clear that the non-binding shareholder vote does not create or imply any change in the fiduciary duty of the company’s board of directors. (Gordon v. Goodyear, ND Ill., July 13, No. 12 C 369, July 13, 2012)
As well they should.