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Delaware Supreme Court Clarifies Ratification Defense In Stock Option Cases

Posted In Fiduciary Duty

In re Investors Bancorp Inc. Stockholder Litigation, No. 169, 2017 (Dec. 13, 2017, revised Dec. 19, 2017)

There has been some uncertainly over the effect of stockholder approval of stock option plans for directors, such as does that approval constitute ratification so as to invoke the business judgment rule. This decision clarifies that law. In general, ratification will occur when the directors lack discretion on how the actual stock options are to be granted. For example, if the stock option plan permits the directors to fix the amount of stock or the price they are to pay, then the stockholder vote is not a ratification.