The Delaware Court of Chancery has issued an opinion on a Section 220 demand made against Yahoo! No complaint has yet been filed, and although Vice Chancellor Laster speculates on some inferences that can be drawn, no one has proven anyone has done anything wrong.
The allegations in the case have eerie parallels to the Disney compensation litigation. The Vice Chancellor notes:
Mark Twain is often credited (perhaps erroneously) with observing that history may not repeat itself, but it often rhymes. The credible basis for concern about wrongdoing at Yahoo evokes the Disney case, with the details updated for a twenty-first century, New Economy company. Like the current scenario, Disney involved a CEO hiring a number-two executive for munificent compensation, poor performance by the number-two executive, and a no-fault termination after approximately a year on the job that conferred dynastic wealth on the executive under circumstances where a for-cause termination could have been justified. Certainly there are factual distinctions, but the assonance is there.
While noting the decision does not hold the Yahoo directors breached their fiduciary duties, the Vice Chancellor observed:
Based on the current record, the Yahoo directors were more involved in the hiring than the Disney directors were, but the facts still bear a close resemblance to the allegations in Disney III. The directors‘ involvement appears to have been tangential and episodic, and they seem to have accepted Mayer‘s statements uncritically. A board cannot mindlessly swallow information, particularly in the area of executive compensation: ―While there may be instances in which a board may act with deference to corporate officers‘ judgments, executive compensation is not one of those instances. The board must exercise its own business judgment in approving an executive compensation transaction.‖ Haywood v. Ambase Corp., 2005 WL 2130614, at *6 (Del. Ch. Aug. 22, 2005). Directors who choose not to ask questions take the risk that they may have to provide explanations later, or at least produce explanatory books and records as part of a Section 220 investigation.