Delaware Court Affirms Foundational Principle of Directors’ Fiduciary Duties

At a time when Delaware corporate law is under attack for allegedly becoming unpredictable, the Delaware Court of Chancery on April 30 re-affirmed a fundamental tenet of fiduciary duty – namely, that directors’ fiduciary duties are to maximize the long-term value of the corporation they serve—i.e., the duties are “firm-specific”—and that directors do not have a duty to manage the business and affairs of the corporation for the benefit of its stockholders’ broader diversified interests in other companies and the economy as a whole.

An Orrick team led by Jim Kramer and Alex Talarides successfully defended Meta Platforms, Inc.’s board of directors and officers against a complaint challenging one of the most fundamental principles of Delaware law—that a board’s fiduciary duties are “firm-specific” and run to the company’s stockholders in their capacity as stockholders of that company, and thus directors have no fiduciary duty to manage the business and affairs of the company in a manner that takes its stockholders’ interests in other companies into account.

The court’s decision is an important ruling on a matter of first impression for the Delaware courts (and even courts nationwide) that will create a roadmap for how courts may handle future challenges to corporate actions of similar nature. The plaintiff’s theories, if adopted, would have changed the very foundation of Delaware law with significant implications for every Delaware company. Instead, the Court reaffirmed the fundamental principles of Delaware law to make explicit the scope of the duties that Delaware fiduciaries owe to stockholders.

This ruling should give officers and directors confidence that their decisions will be judged by objective standards that are firmly rooted in Delaware law.  Specifically, so long as fiduciaries are careful to consider all material information in making decisions and the decisions they make are done in good faith with the belief that they are in the best interests of the company and its stockholders, as stockholders in that specific company, their decisions will be firmly protected under Delaware law.