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In re Walt Disney Co. Derivative Litig. - 907 A.2d 693 (Del. Ch. 2005)

Rule:

The fiduciary duty of due care requires that directors of a Delaware corporation use that amount of care of which ordinarily careful and prudent men would use in similar circumstances, and consider all material information reasonably available in making business decisions, and that deficiencies in the directors' process are actionable only if the directors' actions are grossly negligent.

Facts:

Stockholders filed a case against the Walt Disney Company’s directors alleging that defendant directors breached their fiduciary duties in connection with the 1995 hiring and 1996 termination of Michael Ovitz as President of the Walt Disney Company. The president was hired in large part due to the efforts of the company's chief executive officer (CEO), Michael Eisner, who had not only known Ovitz for several years but had been acting both as Disney's CEO and president since the untimely death of its previous president in early 1994.

Issue:

Did the directors comply with their fiduciary duties in connection with the president's hiring and termination?

Answer:

Yes

Conclusion:

The court concluded that the directors had complied with their fiduciary duties in connection with both the hiring and termination of Ovitz. It found that the president did not commit gross negligence or malfeasance while serving as president. As a result, terminating him and paying a no-fault termination payment (NFT) did not constitute waste because he could not be terminated for cause. The directors did not act in bad faith, and were at most ordinarily negligent, in connection with his hiring and the approval of the employment agreement. CEO Eisner stretched the outer boundaries of his authority by acting without specific board direction or involvement, but did not act in a grossly negligent manner, and his actions were taken in good faith. None of the other directors breached their fiduciary duties or acted in anything other than good faith in connection with the hiring, the approval of the employment agreement, or the president's election. Therefore, the fact that no formal board action was taken with respect to his termination was of no import.

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