Corporate Governance

Fogel v. U.S. Energy Systems Inc and Limits on the Authority of Independent Directors

By J. Robert Brown

Delaware courts may provide incentive for boards to have independent directors but they are not about to actually let them run the company.  In a series of recent cases, the Delaware courts have gone out of their way to limit the authority of these directors.  In Schoon, the Supreme Court refused to allow a single independent director to bring a derivative suit.  In Fogel, nicely discussed below by JP Thibeault, the court overturned a decision by the three independent directors of the board when they met for a scheduled meeting and fired the CEO.  The court concluded that in fact no meeting had actually occurred.  Alternatively, independent directors acted in a deceptive manner in not notifying the CEO in advance of the intent to dismiss him.

Suffice it to say that when independent directors act against a CEO, the pro-management bias of the Delaware courts will surface. 

Full post as published by The Race to the Bottom on February 23, 2008 (boomark / email).