November 09, 2015
Defending Me Defending Sanchez
Posted by Usha Rodrigues

My erudite and awesome friend Steve Bainbridge swiftly responded to my earlier post on the notion of director independence as described in recent Delaware Supreme Court case Del. County Emples. Ret. Fund v. Sanchez with a typically spirited riposte that you should go read in its entirety.  There he expanded on his earlier critique of the case:

My claim is that it will be much more difficult for plaintiffs use the "tools at hand" to develop sufficiently particularized facts relating to the nature of a friendship than an economic relationship. How often will a Section 220 books and records inspection produce evidence that the CEO and a director are life-long pals, for example. Or reading SEC filings, for that matter? Maybe plaintiffs will be able to find stories in the media about their lifelong friendship. A Google search turned up stories about Bill Gates being close friends at some point of his life with Paul Allen (still?), Water Buffett, Michael Larson, and Steve Ballmer (still?).

But what about less high profile CEOs with less high profile friends?

I await Usha's response eagerly.

Sadly, associate deaning duties and the myriad tiny tyrannies of a rainy day weekend spent at home with 3 children and 2 dogs, one of whom consumed not one but two chicken carcasses (he appears to be fine) conspired to keep me from responding to Steve earlier.  But procrastination sometimes bears fruits, and this morning via an email my friend Andrew Schwartz offered some thoughts that he's allowed me to share.

people these days have much of their life up on Facebook, Instagram, Twitter, et cetera, and the trend seems on the increase (in part because young people today are growing into the executives of the future).

A plaintiff could investigate personal ties between directors and CEOs (and the families of each) using these and other social media sites.  If she could show a CEO and director have commented on practically every Facebook post of the other for the past ten years, and that the director was the CEO’s first Twitter follower, and that there are selfies of the two of them on Instagram, then that might well be enough to survive a motion to dismiss on the basis of close, longstanding friendship. 

First, given the elite status of most CEOs and directors, news profiles and vanity pieces may flush out friendships.  Second, Andrew's excellently articulated point applies both to elite directors and to the comparatively rare "ordinary folks" director.   Third, it occurs to me that plaintiffs might make use of social network analysis to plead some particularized facts raising reasonable doubt as to a director's independence.  I am somewhat tentative in this suggestion because I'm not entirely clearly what social network analysis is, and class preparation demands my attention (In the immortal words of Rodney Dangerfield, "I'm gonna talk to that Dean. I mean, these classes could be a REAL inconvenience."). I would welcome reader insight here.

Finally, as Steve points out in an update to his own post

Of course, independence is an issue in many settings other than just demand excused cases. In many (most?) of those other situations, independence issues will be resolved at the summary judgment stage or even trial. Accordingly, in those cases, my objection is partially vitiated. Where to draw the line-something we must do even in a standards-based approach-remains a difficult question (IMHO).

Drawing the line here is a difficult question, and I think it's a strength of Delaware's "standard, not rule" approach that the doctrine acknowledges and embraces the complications inherent in assessing the relationship between two individuals.   But regardless of whether I (or Andrew) convince Steve on this point, however, this kind of exchange is for me the best part of blogging.

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