The stock-option practice qualifies as one of those "rare cases," according to the Delaware Court of Chancery, in which "a transaction may be so egregious on its face that board approval cannot meet the test of business judgment."
The stock-options scandal has snarled CEOs, CFOs, and other corporate executives in internal and government investigations, not to mention bad press. For the most part, independent directors have managed to keep clear.
Now the net seems to be widening, thanks to a pair of rulings by the influential Delaware Court of Chancery earlier this month. The decisions by Chancellor William Chandler III to allow shareholder derivative lawsuits to proceed — against directors of Tyson Foods and Maxim Integrated Products — is "extraordinary" for the traditionally business-friendly court, says law professor Charles Elson.
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The allegations that directors breached their fiduciary duty "are pretty serious," adds Elson, also the chairman of the Center for Corporate Governance at the University of Delaware's school of business. "And the court's patience with management is beginning to wear thin."
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