Brehm v. Eisner
Supreme Court of Delaware
746 A.2d 244 (Del. 2000)
Disney's 1995 board (the Old Board) approved a five-year employment agreement, negotiated by CEO Michael Eisner, hiring Michael Ovitz with a salary, bonus, stock options, and a non-fault termination provision guaranteeing a large severance package if Ovitz left through no fault of his own. When the 1996 board (the New Board) terminated Ovitz on a non-fault basis just fourteen months later, he received roughly $140 million in cash and vested stock options. Shareholders (plaintiffs) sued Disney's directors (defendants), claiming the Old Board breached its fiduciary duty by approving the agreement without informing itself of the non-fault termination provision's true cost, and that the New Board committed waste by agreeing to the non-fault termination; the Court of Chancery dismissed the complaint.
Whether a board of directors breaches its fiduciary duty of care by approving an executive compensation agreement when it understood how a severance payout would be calculated but did not know the exact dollar amount that payout would ultimately total.