In a judgment that will be closely watched by US company executives, Delaware Court of Chancery Chief Judge William Chandler has ruled that the $140m severance package of former Walt Disney No 2, Michael Ovitz, after only 14 months with the company, was legal.


The Washington Post reports the judge said although the package was ‘breathtaking’, it was perfectly legal and that directors did not violate their duty to protect shareholders when they approved it. The decision comes at a time when executives and directors are being held to tough new standards for corporate accounting. But legal experts say the ruling continues to allow directors a relatively free hand in bestowing huge pay packages on executives. The plaintiffs accused the directors of violating their duty to protect shareholder interests.
Full report in The Washington Post


Legal experts say the decision will bring relief to corporate boardrooms, but the decision falls well short of giving directors free rein to act carelessly. Shareholder advocate Patrick McGurn said the judge's strong language in rejecting the shareholder suit sent a warning to directors in similar situations, reports the Los Angeles Times. ‘As it is, it is not open season on compensation committee members,’ said McGurn, Executive Vice President for Institutional Shareholder Services. ‘But the court has put a ‘Please file claims’ sign on their door. What this has done is it has encouraged people to take their most egregious cases to the court to try to get another judgment.’
Full report in the Los Angeles Times