A US judge has ruled that a lawsuit regarding the compensation packages received by non-management directors at Facebook can proceed.
Directors at Facebook are accused of incorrectly ratifying the increase in non-management directors’ pay.
Shareholder Ernesto Espinoza brought the suit in June 2014, arguing that the social media network’s chief executive officer Mark Zuckerberg (pictured) and other top management allowed non-management directors to receive excessive compensation packages. The claim also alleged breach of fiduciary duty, unjust enrichment and corporate waste.
Zuckerberg, who is also board chairman and Facebook’s controlling shareholder, expressed his approval of the pay increases in a deposition and affidavit after the lawsuit was filed; an action that Facebook says ratified the raises.
The case of Espinoza vs Zuckerberg et al. was held at the Court of Chancery of the State of Delaware in July, and the judgement was released on 28 October. The judge, Chancellor Bouchard, said in corporate law ratification, formal structures govern the collective decision-making of stockholders. Such formalities protect a corporation and its stockholders by defining what action has been taken and establishing that the needed number of stockholders approved such action, and by promoting transparency, especially for non-assenting stockholders.
Bouchard said: “I therefore conclude that stockholders of a Delaware corporation, even a single controlling stockholder, cannot ratify an interested board’s decisions without adhering to the corporate formalities specified in the Delaware General Corporation Law for taking stockholder action.”
Bouchard denied the defendents’ motion for summary judgment with regard to the breach of fiduciary duty and unjust enrichment, but did dismiss the charge of corporate waste, finding that arguments that the directors’ compensation was “excessive or even lavish” are insufficient to meet the standard required for a waste claim.
Facebook was unavailable for comment.
