Dissident Director Who Harms Corporation To Further Personal Objectives Violates Duty Of Loyalty


I. Director Duty of Loyalty -

Directors owe fiduciary duties to a corporation on whose Board of Directors (“Board”) they serve and effectively to all of its stockholders. The fiduciary duty of loyalty dictates that directors act in good faith and not allow their personal interests to prevail over those of the corporation. Thus, a director may not use confidential company information, or disclose it to third parties, for personal gain without authorization from his fellow directors. This principle is often memorialized in corporate policies.

II. Duty of Loyalty Breached by Leaking Confidential Information -

In Shocking Technologies, Inc. v. Michael, a director (“Michael”) of a privately held Delaware corporation in dire financial straits who was on the Board as the representative of two series of preferred stock, was sued by the corporation for breaching his duty of loyalty by leaking negative confidential information to another preferred shareholder considering an additional investment in the company. The Delaware Court of Chancery found that Michael disclosed the confidential information (i) to encourage the potential investor to withhold funds the corporation desperately needed, thereby making the company accommodating to the governance changes sought by Michael, or (ii) if the investor nevertheless decided to invest, to help the investor get a “better deal” which would include Board representation for such investor (thereby changing the balance of power on the Board in Michael’s favor). In holding that Michael had violated his duty of loyalty, the Chancery Court explained...

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jackson Walker | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.