A Delaware judge made a significant ruling on April 30, 2024, dismissing a shareholder lawsuit that raised unconventional claims regarding the responsibilities of corporate leaders, particularly focusing on Meta's directors and founder Mark Zuckerberg. The lawsuit, brought forth by James McRitchie, an advocate for corporate governance and shareholder activism, contended that Meta's directors had neglected broader societal and economic interests in favor of maximizing profits for the social media giant.
In a comprehensive 101-page opinion, Vice Chancellor J. Travis Laster deliberated over the arguments presented by McRitchie, which were based on a supposed breach of duties by Meta's directors. McRitchie posited that the directors should not prioritize profits over the diversified investments of Meta shareholders in other companies, suggesting a departure from the traditional "standard Delaware formulation" of corporate law.
Laster's ruling reaffirmed the foundational principles of corporate governance, emphasizing that directors owe fiduciary duties primarily to the stockholders of the corporation. He cited a rich array of legal precedents spanning over two centuries, scholarly articles, and even literature, including a Sherlock Holmes short story, to support his conclusion.
Laster rejected McRitchie's proposition for a "portfolio theory" of corporate governance, which would consider external factors beyond the immediate interests of the corporation and its shareholders. While acknowledging academic and advocacy viewpoints favoring such a model, Laster found them insufficient to warrant a departure from established legal norms.
The lawsuit contended that Meta's pursuit of profits had led to negative societal consequences, including mental health issues among young Instagram users, online human trafficking, "vaccine hesitancy," incitements to violence, and the spreading of "election misinformation." However, Laster's decision underscored the legal principle that Delaware courts prioritize the interests of the corporation's stockholders.
The court's ruling reaffirmed the conventional understanding of corporate governance, where directors are primarily accountable to the shareholders they serve.
This ruling signifies a reaffirmation of traditional corporate governance principles in the face of evolving debates surrounding the responsibilities of corporate leaders. While shareholder activism continues to shape corporate discourse, the Delaware court's decision sets a precedent emphasizing the paramount importance of stockholders' interests in corporate decision-making processes.
