Opinion ID: 2308640
Heading Depth: 1
Heading Rank: 15

Heading: Presumption of Loyalty/Duty of Loyalty

Text: This Court has traditionally and consistently defined the duty of loyalty of officers and directors to their corporation and its shareholders in broad and unyielding terms: Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests.... A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives, has established a rule that demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his duty, not only affirmatively to protect the interests of the corporation committed to his charge, but also to refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his skill and ability might properly bring to it, or to enable it to make in the reasonable and lawful exercise of its powers. The rule that requires an undivided and unselfish loyalty to the corporation demands that there be no conflict between duty and self-interest. Guth, 5 A.2d at 510; see also Ivanhoe Partners v. Newmont Mining Corp., Del.Supr., 535 A.2d 1334, 1345 (1987). Essentially, the duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally. Pogostin v. Rice, Del.Supr., 480 A.2d 619, 624 (1984); Aronson, 473 A.2d at 812. [29] Classic examples of director self-interest in a business transaction involve either a director appearing on both sides of a transaction or a director receiving a personal benefit from a transaction not received by the shareholders generally. See Nixon, 626 A.2d at 1375; Gilbert v. El Paso Co., Del.Supr., 575 A.2d 1131, 1146 (1990); Weinberger, 457 A.2d at 710; Aronson, 473 A.2d at 812; Sterling v. Mayflower Hotel Corp., Del.Supr., 93 A.2d 107, 110 (1952); see also Ernest L. Folk, Delaware General Corporation Law: A Commentary and Analysis § 141.2 at 141:17 and § 141.33 (3d ed. 1992). We have generally defined a director as being independent only when the director's decision is based entirely on the corporate merits of the transaction and is not influenced by personal or extraneous considerations. See Aronson, 473 A.2d at 816; see also Pogostin, 480 A.2d at 624. By contrast, a director who receives a substantial benefit from supporting a transaction cannot be objectively viewed as disinterested or independent. See Folk, Delaware General Corporation Law § 141.2 at 141:33. This principle necessarily constrains our review of the Court of Chancery's duty of loyalty formulation.