There are many benefits to being a corporate director, both professionally and financially. But there are many challenges as well, including the prospect of stockholder litigation. These benefits and challenges sometimes intersect—as in the area of non-employee director compensation. For although directors typically have the authority to determine their own compensation, what could be considered the self-dealing nature of that determination can expose them to claims that they breached their fiduciary duties in the process.

In recent years, Delaware courts, leaders in the development of corporate law, have imposed a more stringent standard of review to director compensation when challenged by stockholders. As a result, that development has given rise to more such challenges by the plaintiffs’ bar. This article discusses the increase in this type of litigation, recent case law and settlements, and practical advice for boards to mitigate the risk of this litigation and to address it if it arises.

Narrowing Ratification

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