In 2023, two court decisions ( Sandpiper and In re Columbia Pipeline ) hinted at a potential expansion in scope of potential director conflicts. In 2024 and beyond, these decisions may inspire other courts and regulators to review potential conflicts more closely, and shareholders and other parties in contested transactions to pursue real or perceived conflicts as an additional avenue of attack. In Sandpiper , a shareholder requisitioned a meeting and targeted certain directors in its withhold campaign; an Ontario court held that the targeted directors were conflicted in their deliberations regarding the response to the requisitioned shareholder meeting. In the decision in In re Columbia Pipeline , a Delaware court found a director, who was also CEO and Chair of the Board, had breached his fiduciary duty based on “situational” factors unique to his personal circumstances. In particular, the director was leading negotiations for a change- of-control transaction with a third party, while intent on completing a transaction that would allow him to retire within the year and retain the change-of-control benefits that would accrue under his existing equity compensation plan, setting up a clear situational conflict in which his personal considerations collided with the interests of the corporation in the merger negotiations. These decisions remind us that director independence is a fact-driven analysis that needs to be thoughtfully undertaken in each case of potential conflict (regardless of how tenuous the conflict may seem) in order to determine whether the board member or officer can exercise (and be perceived to exercise) independent judgment in the circumstances. We anticipate a potential enhanced focus on what circumstances may be viewed as clouding a director’s judgment, including lengthy tenures and other “practical” and situational conflicts. 10 | Evolving Views on Director Independence
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A Preview of 2024: 10 Trends That GCs and Boards Need to Know
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