Just because you disagree with your fellow directors about corporate policy doesn’t mean you can pursue your own strategy for the company. A point Simon Michael, a director of Shocking Technologies, failed to appreciate when he had talks with a potential investor in the company. Michael disclosed confidential information about Shocking to the investor, in an attempt to dissuade it from injecting funds into Shocking. By leaving the company ‘desperate for funding’, Michael believed the investor would be able to negotiate a better deal which would include undercutting the authority of the rest of the Shocking board.
Not shockingly, Vice-Chancellor Noble of the Delaware Court of Chancery took a dim view of this in the resulting litigation: Shocking Technologies Inc v Michael, 2012 Del Ch LEXIS 224 (28 September 2012). While Michael had a right to seek to change the direction or composition of the company’s board, this was not without limits. It clearly did not give this director free rein to interfere with crucial financing efforts (thereby risking the demise of the company) or to disclose confidential information in the pursuit of an individual agenda. The fact that Michael’s self-interest as an investor in Shocking was aligned with his ostensible altruism about corporate governance also didn’t help his case. Even if he had reasonable goals, he chose improper means to pursue them, and putting the company on the brink of financial disaster was clearly a breach of his ‘unremitting’ duty of loyalty to it. But because Michael had ‘failed abjectly’ in achieving his objectives, the vice-chancellor concluded that Shocking did not suffer material damages, nor would he exercise his discretion to make a significant costs award in Shocking’s favour. It was simply too speculative to say that Michael’s actionable conduct would have continued or intensified if Shocking had not sued its rogue director.