When It Comes To Director Compensation, California Is Not Delaware

Allen Matkins
Contact

Yesterday, I wrote about my disagreements with the approach to director compensation adopted by the Delaware Court of Chancery in Calma v. Templeton, 114 A.3d 563 (Del. Ch. 2015) and Seinfeld v. Slager, 2012 Del. Ch. LEXIS 139 (June 29, 2012).  In both cases, the Court ruled that the rigorous “entire fairness” standard of review applies to director’s who receive grants of restricted stock units under a stockholder approved equity compensation plan.  As explained by Chancellor Andre G. Bouchard in Calma:

Accordingly, because the RSU Awards were self-dealing decisions, the operative standard of review is entire fairness, and it is reasonably conceivable that the total compensation received by the non-employee directors was not entirely fair to the Company.

114 A.3d 563, 569 (Del. Ch. 2015).

Some may be surprised to learn that not every state considers a director to be interested simply because she is compensated.  In fact, Section 310(a) of the California General Corporation Law provides:

A director is not interested within the meaning of this subdivision in a resolution fixing the compensation of another director as a director, officer or employee of the corporation, notwithstanding the fact that the first director is also receiving compensation from the corporation.

In light of this statute, a board could adopt a “round-robin” series of resolutions approving director compensation with each director abstaining as to the resolution fixing his or her own compensation.  However, in the words of one leading treatise, this would be an “empty formality”.  Ballantine & Sterling, California Corporation Laws § 81.04[1] (4th ed.).

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.

© Allen Matkins | Attorney Advertising

Written by:

Allen Matkins
Contact
more
less

Allen Matkins on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide