The Rights and Duties of Blockholder Directors

Winter 2014/2015


Delaware corporate law embraces a “board-centric” model of governance contemplatingthat, as a general matter, all directors will participate in a collective and deliberativedecision-making process. Rather than serving as a justification for a board majority to disempowerdirectors elected or appointed by or at the direction of a particular class or seriesof stock or an insurgent group—which we refer to as “blockholder” directors—this systemrecognizes the need for a balancing of both majority and minority rights. In this article, wereview the rights and duties of all directors and highlight cases where both board majoritiesand blockholder directors have overstepped their bounds. We caution that board majoritiesshould deliberate carefully before taking action that limits a blockholder director’s rights orexcludes the blockholder director from participation in fundamental corporate matters. Atthe same time, we caution that blockholder directors should take care when exercising theirrights, given that their affiliation with investors may make them vulnerable to duty of loyaltyclaims. We urge both sides to proceed with a sense of empathy toward the other andseek to make reasonable accommodations, and we emphasize the role that experienced corporatecounsel can play in mediating disputes, resolving tensions, and striking the appropriatebalance in the boardroom.

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