Does the Lack of a Succession Plan Constitute a Breach of Fiduciary Duty?

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On June 21, 2012, in response to Plaintiff alleging HP’s Board of Directors breached their fiduciary duties to the company and its shareholders by failing to implement a succession plan, the Delaware Court of Chancery explained that it is “not aware” of any “Delaware precedent that stands for the proposition that failure to adopt a long-term succession plan amounts to a breach of duty.”  Zucker v. Andresssen, C.A. No. 6014-VCP, p. 28 (Del. Ch. June 21, 2012) (CLICK FOR OPINION).  In support of its opinion, the Court cited another case, acknowledging: “[a]spirational ideals of good corporate governance practices for boards of directors that go beyond the minimal legal requirements of the corporation law are highly desirable, often tend to benefit stockholders, sometimes reduce litigation and can usually help directors avoid liability.  But they are not required by the corporation law and do not define standards of liability.”  Zucker, p. 29 (citing Brehm v. Eisner, 746 A.ed 244, 256 (Del. 2000)).

Despite the foregoing, the Court cited other procedural requirements that the Plaintiff did not satisfy, and concluded its opinion by emphasizing it “ha[d] no need to address whether the duty of care requires directors to adopt succession plans, and it expresses no view on that issue.”  Zucker, p. 30.  While the Zucker Court did not completely resolve the issue, dicta within the opinion indicates such a claim may be difficult to establish. 

The Zucker opinion reflects the Delaware Court’s impression on the issue, but it is important to keep in mind that Iowa Courts frequently look to Delaware law and opinions for guidance on business and corporate law issues.

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About Matthew McKinney

Attorney focused on civil and commercial litigation.
This entry was posted in Business Owner, Director, Intra-corporate dispute, Litigation, Manager, Member, New Law, Officer, Partners, Partnership, Shareholder and tagged , , , , , , , , , , , . Bookmark the permalink.

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