This past Tuesday, the Court of Chancery held that causing a corporation to take a public stance on a matter of public controversy is a business decision for which the Board of Directors is protected by the business judgment rule in Simeone v. The Walt Disney Company, C.A. No. 2022-1120-LWW (Del. Ch. June 27, 2023). This decision confirms the broad discretion Delaware fiduciary law extends to a disinterested Board of Directors to consider environmental, social, and governance (“ESG”) factors in building the firm’s long-term value.
The plaintiff stockholder sought corporate records relating to the Board’s decision to cause Disney to publicly criticize Florida House Bill 1557, alleging that the decision led the Florida state government to enact unfavorable legislation leading to a loss of corporate profits and value. The company furnished some records, but withheld others, after which the stockholder filed an inspection demand under Section 220. After trial, V.C. Will found for the corporation for several independently-sufficient reasons, but devoted the bulk of the opinion to one: “choosing to speak (or not speak) on public policy issues is an ordinary business decision,” subject to business judgment rule protection, and thus “the plaintiff has not provided a credible basis from which to infer possible wrongdoing.”
The Court ruled that directors’ outside involvement with non-profit political advocacy organizations did not suggest that their decision-making was conflicted. Likewise, the Court reasoned that even if the Florida state government had threatened reprisal against the company for opposing the bill — a proposition the stockholder claimed but which the Court did not accept — the decision of how to weigh such a threat against the company’s employee- and customer-relations imperatives was entrusted to the Board in its exercise of business judgment.
The Board had formally deliberated on how to react to public outcry over a Florida state legislative enactment. The course of action they chose is therefore a quintessential business decision balancing competing factors falling squarely within the Board’s business judgment. How the Board decided to proceed is thus not subject to judicial review, nor to stockholder review (except, presumably, insofar as it affects the stockholders’ own voting decisions in future elections) and is therefore entitled to the protection of the business judgment rule. Thus, by extension, the Section 220 demand must fail because:
Such an inspection would not be reasonably related to the plaintiff’s interests as a Disney stockholder; it would intrude upon the rights of directors to manage the business of the corporation without undue interference.