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In a wide-ranging interview with NACD Directorship’s Jeff Cunningham, America’s leading corporate jurist, Delaware Chancellor William B. Chandler III, explains his legal philosophy, concerns about liability, where he sees the line drawn between the federal branch and the Delaware Court, the impact of the Disney case on director behavior, the powerful new mediation alternative and more.
Has the court shifted the balance of power toward shareholders and is this in any way related to the profound shift in public anti-business sentiment?
Well, my hope is that the Court is never viewed as deciding cases based on perceptions of public opinion; our job is to decide cases based on the facts and the law. That is, the members of the Delaware courts try to make decisions based on the legal and well- known equitable principles that have been developed over time. The Court of Chancery has the luxury of a rich body of decisional law and the five members on this court have a shared background and legal experiences that help ensure an even and coherent body of decisions. The other special characteristic is that decisions are offered in a candid manner, describing precisely what is improper so that there is certainty about what corporate planners can or cannot do in the future. So, you can rely on the fact that this Court will not be swayed by public sentiment of the moment; our job is to provide a dispassionate and objective answer. That, I think, is and should be the defining characteristic of court.
Why not be swayed by public opinion?
Litigation is not a referendum on popular opinion. Our job— the job of any tribunal—is to apply the law fairly and impartially to the facts of a dispute. That’s the definition of the Delaware Court of Chancery. Our law holds directors and managers responsible or accountable for their decisions and establishes the right of stockholders to have a role in holding directors accountable— either through exercise of the stockholder franchise or via the litigation process. Plainly speaking, an enormous body of law defines our law and that law will not shift based upon public opinion polls. That is the certainty and predictability that Delaware law and the Court of Chancery uphold as part of the contract with investors and with directors. That is the certainty and predictability that Delaware law and the Court of Chancery uphold as part of the contract with investors and with directors.
Can you relate that to a more specific instance, the Disney case?
Disney encouraged directors to consider best practices but pointed out that directors cannot be held liable for not following a particular best practice. Our fiduciary law is a floor for director conduct, essentially a standard below which they may not fall without risking liability. It would be unfair and counterproductive to hold directors to a standard of care or liability that doesn’t exist at the time they make a decision or at the time a director decided not to take an action. Holding a director to a standard that didn’t exist at the time would be a perverse rule, and no doubt would cause any rational person to reconsider serving in such a capacity.
Is there a bright line here for directors?
What I was hoping to say in Disney is merely that it’s highly unlikely that they would ever be found liable if directors followed a path of best practices. You could look at these best practices similar to a safe harbor provision. But best practices in any endeavor constitutes an aspirational norm rather than a requirement, which hopefully will inspire as well as guide and inform directors in their decision-making. (From Boardroom Justice, Interview by Jeff Cunningham of Chancellor William B. Chandler III (Dec. 17, 2010)).
These views reflect the position taken at the international level. See, Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, John Ruggie, Business and Human Rights: Further steps toward the operationalization of the “protect, respect and remedy” framework, A/HRC/14/27, Human Rights Council, 14th session, Agenda item 3, Promotion and protection of all human rights, civil, political, economic, social and cultural rights, including the right to development. It also suggests the importance of these social-norm frameworks for guiding corporate action that touches on issues of race and class. For a view of the Disney litigation from the perspective of directorial independence, and the relationship of independence to assumptions about race and class, see, Backer, Larry Catá, Director Independence and the Duty of Loyalty: Race, Gender, Class and the Disney-Ovitz Litigation. St. John's Law Review, Vol. 79, 2005. Available at SSRN: http://ssrn.com/abstract=780244