A California court recently granted Symantec’s demurrer in a lawsuit that challenged its proxy statement disclosures in connection with an annual meeting. For those of us who haven’t been to law school recently, a demurrer appears to be the equivalent of dismissal for failure to state a cause of action.
The court did not have a hard time finding the well-worn boiler plate fiduciary duty standard before tossing out plaintiff’s suit: “”[A] board of directors is under a fiduciary duty to disclose material information when seeking shareholder action: It is well-established that the duty of disclosure represents nothing more than the well-recognized proposition that directors of, Delaware corporations are under a fiduciary duty to disclose fully and fairly all material information within the board’s control when it seeks shareholder action.” (Malone v. Brincat (Del. 1999) 722 A.2d 5, 9, footnotes and quotation marks omitted.).”
Among other things, plaintiff alleged a violation of the duty of disclosure affecting the Symantec shareholders’ right to an informed vote on the say-on-pay proposal. In what may be a word to the wise, the court noted it could not conclude as a matter of law that the advisory nature of the say-on-pay vote nullifies the defendants’ duty to communicate information about the corporation’s affairs with due care, loyalty and in good faith. According to the court, the foregoing conclusions were fortified by the statement in the proxy that the Compensation Committee and Board “will consider the outcome of the vote in establishing compensation philosophy and making future compensation decisions.”
Key Takeaway: Courts will dismiss baloney lawsuits on compensation matters after a long fight. However, even though the say-on-pay vote is advisory, typical fiduciary duties apply.
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