May 19, 2006
Grundfest Resigns From Oracle Board
Posted by Gordon Smith

If you teach business organizations law from the best new book on the market, you probably teach In re Oracle Corp. Derivative Litigation, a Delaware case in which Vice-Chancellor Leo Strine examines the independence (or not) of the two Stanford professors who comprise a special litigation committee (SLC) investigating claims of insider trading against Oracle's CEO, Larry Ellison, and three other defendants. The SLC filed a motion to terminate the litigation, but Vice-Chancellor Strine denied the motion, holding that the SLC was "fraught" with "bias-creating relationships."

One of those Stanford professors was Joe Grundfest, who has just resigned his Oracle directorship. In his brief letter of resignation, Grundfest observes, "I have been asked to consider resigning from the board of directors of Oracle Corporation because of a perception that my new position as co-director of the Rock Center on Corporate Governance at Stanford University has the potential to raise issues that were unanticipated as of the time I initially joined the board.''

Hmm. What does this mean?

Grundfest doesn't elaborate, but his letter states his belief that "these concerns are misplaced."

The Merc interviewed Ray Bingham, another director of Oracle, who offered this: "The good ship Oracle needs to be steered on a steadier course than on what might appear to be in fashion at think tank to think tank and on blog to blog. It's very tumultuous waters right now . . . People don't agree on what constitutes good corporate governance right now.'' (Blog to blog? Does Grundfest blog?)

If that's really the reason Oracle asked for Grundfest's resignation, then I would agree with Grundfest that Oracle's concerns seem overraught.

Without any basis other than the weakness of the official explanation, I wonder whether there is a simpler explanation: Grundfest simply had outlasted his usefulness to Oracle. He joined the Oracle board on October 15, 2001, after several lawsuits had been filed in connection with the alleged insider trading. According to Vice Chancellor Strine's opinion, "Before deciding to join the Oracle board, Grundfest, in particular, did a good deal of due diligence." The SLC was formed on February 1, 2002.

It appears that Grundfest was recruited to the board at least in part (primarily?) to act as an independent director in disposing of the insider trading litigation. In the wake of Vice Chancellor Strine's opinion (issued on June 13, 2003), Grundfest could no longer serve that function. So perhaps it was simply time for him to go, and the corporate governance center was merely pretext?

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