Wednesday, March 19, 2014
A hearing in the Delaware Court of Chancery highlights the question raised in my earlier post of institutional shareholder activism and provides a timely example of one brand of shareholder activism: issue activism.
Yesterday, Vice Chancellor J. Travis Laster denied Hershey's motion to dismiss a books-and-records suit brought by shareholder Louisiana Municipal Police Employees' Retirement System. The suit seeks inspection of corporate books to investigate claims that the chocolate company knowingly used suppliers violating international child labor laws. A full description of the hearing is available here.
UPDATE, Kent Greenfield who has been involved in the case, provided me with a copy of the Hershey hearing & ruling ( Download Hershey Ruling) as well as some context for the case. Yesterday's hearing did two things. First, it clarified the standard of review for motions to dismiss section 220 books and records demands. Citing to Seinfeld v. Verizon Commc'ns, Inc., 909 A.2d 117, 118 (Del. Supr. 2006), the proper standard is whether a shareholder has provided "some evidence to suggest a 'credible basis' from which a court can infer that mismanagement, waste or wrongdoing may have occurred." Second, the books and record request was brought on the novel theory that corporate violations of law (domestic and international) are ultra vires and within the scope of shareholder enforcement. The ultra vires corporate enforcement theory is discussed in more detail in this 2005 article by Professors Greenfield and Sulkowski.