The Ovtiz case on Disney’s corporate board governance appears to have set some new standards for exactly how much leeway corporate boards have in making decisions.
Professor Bainbridge has been keeping a close eye on the trial and appeal. While he was not suprised by the result, he does think the judges missed a few key points in the case. Including a basic understanding of the business judgement rule, exactly what constitutes derliction of duty, and whether too high a standard (knowing violation of the law) was used in the decision.
Over at the Business Law Prof Blog they’re suprised by what is missing from the judgement. Mainly no guidelines for compensation limits.
Meanwhile the Conglomerate Blog found it interesting that the judge found Disney did violate best corporate practices but found that there was no judicial penalty for doing so. The idea being that the market would work it’s own justice. Alas, as history has born out, there is no such a creature. Conglomerate Blog posts their own comments round up here too.
This whole situation shows how stock holders are at the mercy of Delaware Courts and Lawmakers. They’ve crafted a very liberal field for corporations to play on with few or no penalties for fouls. If there are no teeth to the regulations, then there are in fact no regulations. Relying on the market for corrections has proven to be useless in this case as there is no action the market can take against a rogue board but to sell the stock or vote the board out, which in the case of Disney, can prove to be most difficult. Profit drives the decisions of the majority of share holders (institutional fund managers and the like) these days, they will never be willing to cut off their paycheck to punish a rogue board. Yet it seems there is little we can do about it other than move to Delaware and vote to change the laws.