In re The Walt Disney Company Derivative Litigation, 907 A.2d 693 (Del. Ch. 2005)
The case of In re Disney Shareholder Derivative Litigation is a landmark decision in corporate law involving fiduciary duties and executive compensation. It arose from the hiring and firing of Michael Ovitz as president of the Walt Disney Company and the subsequent shareholder allegations of breaches of fiduciary duty by Disney's board of directors.
Did the directors of The Walt Disney Company breach their fiduciary duties in approving the hiring and termination of Michael Ovitz, and in overseeing his severance package?
Under Delaware law, directors have fiduciary duties of care and loyalty, which require them to act in an informed manner and in the best interests of the corporation and its stockholders.
The Delaware Chancery Court held that the directors did not breach their fiduciary duties. The court found that the board members had acted in good faith, with rational business purpose, and that their decisions fell under the protection of the business judgment rule.
This case is significant because it reinforces the application of the business judgment rule and emphasizes the requirement for directors to fulfill their fiduciary duties responsibly. It illustrates the judiciary's deference to the business judgment of directors when actions are made in a reasonably informed manner, offering a critical assurance to corporate directors concerning their operational autonomy. Additionally, the case is often used to teach law students about the boundaries of the duties of care and loyalty and the mechanics of derivative litigation.