Court of Chancery Applies Ratification To Equity Grants Under Stockholder Approved Plan
Stockholder approval of an equity compensation plan may or may not constitute ratification over awards to the directors under the plan. When it does, the Court of Chancery will review challenges under the business judgment rule. There are Delaware decisions coming out both ways on the issue of ratification. As this decision illustrates, whether or not ratification applies depends on how specific the plan is that the stockholders approved (and whether the vote was informed and uncoerced). When it comes to the level of specificity required in the plan, generally speaking, a plan that sets specific and meaningful limits on the grants could constitute ratification of grants within those limits. This decision, where the Court applied ratification, provides guidance on just how specific the plan must be.