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Assessing Director Independence

By Joanna J. Cline James H.S. Levine and Christopher B. Chuff
November 30, 2015

A recent opinion by the Delaware Supreme Court emphasizes the need for boards of directors to be aware of close interpersonal relationships between their directors and any party with a financial stake in a contemplated transaction. Indeed, the court's decision in Delaware County Employees Retirement Fund v. Sanchez, No. 702, 2014 (Del. Oct. 2, 2015), held that a director's close, personal friendship with an interested party could have the effect of “compromising a director's independence,” and found that derivative stockholder plaintiffs adequately pleaded facts supporting a pleading-stage inference that a director lacked independence from an interested party because he had been a close friend of the interested party for over 50 years and was employed by an insurance company over which the interested party had substantial control.

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