The Advisors' Blog

– Liz Dunshee

The Delaware Chancery Court recently dismissed a derivative suit – “In re Investors Bancorp Stockholder Litigation” – challenging $50 million worth of director equity grants under a shareholder-approved incentive plan. The business judgment rule protected the directors because the plan limited awards by specific category of beneficiary – in this case, non-employee directors & employees – and the proxy statement adequately disclosed the impact of those limits. This excerpt from Steve Quinlivan’s blog gives more detail (also see this Mark Poerio blog):

The opinion notes the Court of Chancery recently performed an exhaustive review of the law of stockholder ratification with regard to director equity compensation in Citrix. The Citrix court noted that there is a distinction between stockholder approval of a plan that features broad parameters and “generic” limits applicable to all plan beneficiaries on the one hand and, on the other hand, a plan that sets “specific limits on the compensation of the particular class of beneficiaries in question.” Approval of broader plans will not extend to subsequent grants of awards made pursuant to that plan; approval of plans with “specific limits,” however, will be deemed as ratification of awards that are consistent with those limits.

According to the Court, once a plan sets forth a specific limit on the total amount of options that may be granted under the plan to all directors, whether individually or collectively, it has specified the “director-specific ceilings” that Citrix found to be essential when determining whether stockholders also approved in advance the specific awards that were subsequently made under the plan.