Delaware Supreme Court Clarifies Law on Friendly Directors’ Independence

In a recent decision of the Delaware Supreme Court, the court reversed a Chancery Court determination that a Director was sufficiently independent such that a demand on the Board of Directors was not excused.  The court clarified that directors whose deep friendship also involved financial ties may not be deemed independent in order to excuse a demand on a Board of Directors.  The court cited the plaintiff’s allegation of a close friendship of over half a century with the interested party that also involved the director’s primary employment (and that of his brother) as an executive of a company over which the interested party had substantial influence.  In its previous ruling in Martha Stewart Living Omnimedia, the Delaware Supreme Court held that allegations that directors “moved in the same social circles, attended the same weddings, developed business relationships before joining the board, and described each other as friends,” were insufficient, without more, to rebut the presumption of independence.  The decision is likely to subject Directors to more scrutiny by Plaintiffs lawyers when considering the necessity of making a pre-suit demand.  The full case can be found here.

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