Saturday, April 21, 2018
I tell my students that corporate waste technically may be a mechanism for defeating the business judgment rule in the absence of any other evidence of lack of compliance with fiduciary duty, but - as one Delaware decision put it - it's really more theoretical than real. See Steiner v. Meyerson, 1995 Del. Ch. LEXIS 95. When my students ask for some kind of real world example of waste, I tell them the facts of Fidanque v. American Maracaibo Co., 92 A.2d 311 (Del. Ch. 1952), where a corporation paid "consulting fees" to a 70-year-old former executive who had recently suffered a stroke that left him sufficiently incapacitated to be noticeable during his deposition.
I assumed that case was sui generis, but it turns out history has a way of repeating, this time in the form of Sumner Redstone's contract with CBS. As described in a recent opinion by Chancellor Bouchard, plaintiff stockholders of CBS adequately alleged that the Board made wasteful payments by refusing to terminate Redstone's $1.75 million contract as Executive Chair once his declining health left him unable to eat or speak, and by designating him Chairman Emeritus - at a $1 million salary - after he resigned from the Executive Chair position.
The decision strikes me as significant not merely because it presents a modern example of waste that I can now offer to my students - at a large, public company no less - but also because CBS is contemplating a merger with Viacom. Both companies are controlled by the Redstone family via supervoting shares, though they are - purportedly - negotiating the deal via independent committees. This kind of self-interested transaction was already vulnerable to legal challenge; how much stronger will that challenge be now that there's already evidence of a supine board willing to cater to Redstone?