February 04, 2009
Delaware v. the feds on officer regulation
Posted by Usha Rodrigues

I asked Lyman Johnson for some more thoughts on Gantler, particularly whether the decision will trigger a Van Gorkom-style panic over executive liability, since Delaware's exculpation statute doesn't cover officers. He's allowing me to quote his response:

As to 102(b)(7), I think now is not an opportune time for executives to be seeking exculpation due to the anti-executive social-political climate. I am told by those present in Delaware back in the mid-1980s that officers were deliberately excluded. Moreover, I think Delaware has now, as a result of Gantler, altered its position vis a vis the federal government on the “threat” issue that Mark Roe has rightly explained over the past few years.

My view has been that Delaware competed on the officer front by not doing anything significant, leaving the SEC to bring far more actions than we see in Delaware and prompting Congress to insert several provisions into SOX that address officers. Delaware did amend its jurisdictional statute several years ago, but the plaintiffs’ bar has fumbled around in its approach to officers, and many officers just settle up with boards when they are terminated in seeming anticipation of an uptick in claims against officers. Interestingly, there is more fiduciary duty action against officers in bankruptcy courts because trustees are motivated to pursue officers to recover assets.

I think as I said that Gantler portends Delaware coming more visibly into the fray on the officer issue, and if the courts do not provide meaningful sanctions they face threats on this front as well as on the director/stockholder fronts that Roe has articulated. So, I doubt the legislature will do anything and I think the courts have to keep a bit of heat on officers as well lest the feds do more on the officer front than cap pay!

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