Over the last year, this blog has bemoaned the Delaware Chancery Court’s decisions expanding potential liability for board compensation and fretted over how much further it might go. Now along comes a Chancery Court decision reciting Disney-esque facts and governance practices, but finding in favor of the board at the motion to dismiss stage.

Over the last year, this blog has bemoaned the Delaware Chancery Court’s decisions expanding potential liability for board compensation and fretted over how much further it might go (See “Recent Court Decisions Concerning Director Compensation,” June 12, 2015). Now along comes a Chancery Court decision reciting Disney-esque facts and governance practices, but finding in favor of the board at the motion to dismiss stage (Freidman v. Dolan [Cablevision]).

This is, of course, great news for Delaware corporations and their board members. And what was the magic bullet that differentiated this case from those allowing compensation lawsuits to go forward? I believe it was the fact that the company maintained a separate stock plan for the non-employee directors.

Reading the first paragraph of the Court’s decision tells you almost everything you need to know about this case (except for the separate plan issue).

It is hard to look at the facts of this case without going away troubled. A compensation committee with various ties to the controlling shareholder family awarded considerable executive compensation and benefits to the patriarch of that family and his son. Additionally, a board dominated by members of the controlling family approved non-executive director compensation, which accrued to three family-member directors with qualifications and attendance records that have been called into question. Nonetheless, compensation decisions are not the expertise of trial judges, and the Court should not second-guess an independent compensation committee's business decisions that are not irrational. The Court also lacks a principled way to evaluate a director's decision to accept a position and her performance as a director. Although the amount of compensation and board composition raise some concern, that concern does not justify judicial intervention into that thicket here.

Tomorrow, I will be speaking on The Explosion of Litigation Over Executive Compensation to the Chicago Chapter of NASPP. Next week, I will include a graph showing the cost vs. litigation risk trade-off for the range of alternatives available to deal with these recent lawsuits over directors’ compensation.