Jim Hamilton reports on what should have been a very simple case:
In a shareholder derivative action, demand was not excused as futile because of the allegation that directors breached their duty of care by not having a succession plan in place upon the company CEO’s unexpected termination, ruled the Delaware Chancery Court. The shareholder claimed that the termination harmed the company by effectively leaving the company leaderless, a harm that would not have occurred if the directors had anticipated the risk and had in place a formal succession plan. (Zucker v, Andreessen, CA No. 6014-VCP, June 21, 2012)
In the old days, you would have looked at this case and said "no allegation of breach of duty of loyalty. No self-dealing, etc...." So the case would be analyzed under the duty of care. Any reason to think the business judgment rule was inapplicable? Well, this was a case of unconsidered in action. So, per Graham v. Allis-Chalmers, were the directors grossly negligent in failing to have a succession plan? No. Case over. (For sake of simplicity, I'm not getting into the procedural wrinkles caused by this being a derivative suit.)
Then came Caremark and its misbegotten progeny. So now you have to ask:
Even accepting the assertion that long-term succession planning is so critical to sound corporate governance that there ought to be a fiduciary duty expressly requiring it and that the stockholders were harmed because the board carelessly failed to implement such a plan, continued the court, the shareholder did not identify any case law or allege any facts suggesting that the directors have been or are on notice that such a failure is a breach of fiduciary duty. Thus, the board could not have consciously disregarded a known duty to act sufficient to rise to the level of bad faith.
Trying to decide whether there was a duty to act under the law and then trying to decide whether the board consciously ignored such a duty strikes this observer as (a) harder than the old way, (b) more likely to intrude into a reasonableness sort of analysis, (c) more likely to get into the substance of what boards do, and (d) more likely to raise director concerns about the litigation risk to which they expose themselves by agreeing to serve. All of which, to my mind, makes it a much worse standard.