Prominent UCLAW alum and Latham & Watkins parter Jim Barrall has posted a very interesting analysis of a recent Delaware decision affecting executive compensation:
In Calma v. Templeton, the Delaware Chancery Court recently denied a motion to dismiss a lawsuit brought by shareholders against Citrix Systems and its directors which alleged that Citrix’s directors had breached their fiduciary duties by paying the company’s non-employee directors excessive compensation from 2011 through 2013. The key holding of the decision is that Delaware’s “business judgment” rule, which affords directors of Delaware corporations discretion in making business judgments and substantial insulation from liability for their judgments, did not apply in the case because the directors were “interested” in the transaction, which therefore required that their decisions be reviewed under the substantially more demanding “entire fairness” standard. The Court also held that the board’s compensation decisions were not “ratified” by the company’s shareholders, notwithstanding that the shareholder-approved “omnibus equity” plan under which their equity was awarded contained conventional (and very high, IRC Section 162(m) driven) limits on the amount of equity that could be awarded to any individual in a single year, because the limits were not “meaningful.” In our Latham & Watkins Commentary, Director Compensation after Calma v. Templeton: Proactive Steps to Consider, we analyze the Calma decision and describe steps that companies should consider taking in the wake of the decision.
In the blog post, Jim goes on to offer a number of thoughts on the decision's impact. Recommended reading.