3 ms·

I admit to be completely out of my depth, but my understanding is that it is a fiduciary duty of the directors to act in the best interest of the shareholders.

I admit to be completely out of my depth, but my understanding is that it is a fiduciary duty of the directors to act in the best interest of the shareholders. Tax planning is a huge part of profit and thus shareholder value, so wouldn't such "gross negligence" represent a breach of fiduciary duty?

pavlov 9y ago
Suing directors for negligence is not easy at all. It's hard to imagine a shareholder lawsuit that basically says: "As a director you didn't guide management to move operations to Jersey, so we want you to pay us $100 million"... It's even harder to imagine a US court being friendly to such a case. The greatest example of board negligence in this industry (that I can think of) in recent years would be when Hewlett-Packard's board hired Léo Apotheker as CEO in 2010. The board members had never met the man and his career had been on a different continent, yet they didn't even interview him in person before giving him the job! Apotheker spent $10.2 billion to buy a British company named Autonomy. Soon after he was fired. Only a year later, HP was forced to write down $8.8 billion of Autonomy's purchase price. That enormous loss was directly the fault of HP's board for hiring such a terrible CEO and letting him do the terrible deal. But shareholders didn't have any recourse; the best they could do is vote on a new board.
- tskaiser 9y ago
  Thank you for the insight. It is one thing what holds in theory, and quite another what happens in reality, as you point out.
- jmalicki 9y ago
  It is actually quite common. Here is a list of hundreds of such open lawsuits: http://shareholdersfoundation.com/content/new-cases http://shareholdersfoundation.com/content/new-cases
  - pavlov 9y ago
    Yes, shareholder lawsuits are common. But it's the company that pays, not directors. HP actually paid $100 million in such a lawsuit for the Apotheker/Autonomy flop: http://www.reuters.com/article/us-hp-classaction-pggm/hp-pays-100-million-to-settle-autonomy-related-class-action-suit-idUSKBN0OP17O20150609 http://www.reuters.com/article/us-hp-classaction-pggm/hp-pay... The 2010 Board of Directors who created and permitted the $8.8 billion loss paid nothing. They kept their compensation, and most stayed on the board.
jmalicki 9y ago
In Seinfeld v. Slager (2012) the Delaware Chancery Court rejected the notion that the directors have a fiduciary duty to minimize taxes. https://www.delawarelitigation.com/2012/07/articles/chancery-court-updates/delaware-does-not-impose-fiduciary-duty-per-se-to-minimize-corporate-taxes/ https://www.delawarelitigation.com/2012/07/articles/chancery...

pavlov 9y ago

Suing directors for negligence is not easy at all. It's hard to imagine a shareholder lawsuit that basically says: "As a director you didn't guide management to move operations to Jersey, so we want you to pay us $100 million"... It's even harder to imagine a US court being friendly to such a case. The greatest example of board negligence in this industry (that I can think of) in recent years would be when Hewlett-Packard's board hired Léo Apotheker as CEO in 2010. The board members had never met the man and his career had been on a different continent, yet they didn't even interview him in person before giving him the job! Apotheker spent $10.2 billion to buy a British company named Autonomy. Soon after he was fired. Only a year later, HP was forced to write down $8.8 billion of Autonomy's purchase price. That enormous loss was directly the fault of HP's board for hiring such a terrible CEO and letting him do the terrible deal. But shareholders didn't have any recourse; the best they could do is vote on a new board.

tskaiser 9y ago
Thank you for the insight. It is one thing what holds in theory, and quite another what happens in reality, as you point out.
jmalicki 9y ago
It is actually quite common. Here is a list of hundreds of such open lawsuits: http://shareholdersfoundation.com/content/new-cases http://shareholdersfoundation.com/content/new-cases
- pavlov 9y ago
  Yes, shareholder lawsuits are common. But it's the company that pays, not directors. HP actually paid $100 million in such a lawsuit for the Apotheker/Autonomy flop: http://www.reuters.com/article/us-hp-classaction-pggm/hp-pays-100-million-to-settle-autonomy-related-class-action-suit-idUSKBN0OP17O20150609 http://www.reuters.com/article/us-hp-classaction-pggm/hp-pay... The 2010 Board of Directors who created and permitted the $8.8 billion loss paid nothing. They kept their compensation, and most stayed on the board.

jmalicki 9y ago

In Seinfeld v. Slager (2012) the Delaware Chancery Court rejected the notion that the directors have a fiduciary duty to minimize taxes. https://www.delawarelitigation.com/2012/07/articles/chancery-court-updates/delaware-does-not-impose-fiduciary-duty-per-se-to-minimize-corporate-taxes/ https://www.delawarelitigation.com/2012/07/articles/chancery...