I don’t believe that any court has decided in favor of plaintiffs alleging that the payment of executive compensation was a breach of fiduciary duty for a waste of corporate assets—until now. The reason is that (in the face of the business judgment rule) corporate waste is very difficult to prove. But last week, the Delaware Chancery Court allowed plaintiffs to continue with their shareholder derivative claims against the board of CBS Corporation in Feuer v. Redstone.
This court has commented many times on the difficulty of pleading a viable claim for waste against a corporate director under our law. But the particularized allegations of the complaint here depict an extreme factual scenario—one sufficiently severe so as to excuse plaintiff from having to make a demand on the CBS board of directors to press claims concerning certain (but not all) of the challenged payments, and to permit plaintiff to take discovery so that an evidentiary record may be developed before the court adjudicates whether those payments were made in accordance with the directors’ fiduciary duties.
Two full pages of the opinion are devoted to listing facts and information “demonstrating that it should have been abundantly clear to the members of the Board—from their attendance at Board meetings, press publicity, and other interactions with the Company—that far from being “actively engaged” in the CBS’s affairs, Redstone was providing no meaningful services to the Company beginning at some point in the latter part of 2014 or in 2015.” During and after that period, CBS paid Mr. Redstone more than $13 million, most of it in performance bonuses.
Note that this is far from a complete victory for plaintiffs. The decision only allows the plaintiffs to continue to trial with their lawsuit. But no allegations of compensation being corporate waste have made it this far in more than 30 years.