Shareholder Suit Over Goldman Sachs Executive Compensation Survives Dismissal in Delaware

(CN) – The Delaware Chancery Court threw out a motion brought by Goldman Sachs that sought to dismiss a shareholder lawsuit accusing the firm of grossly overpaying its directors.

Goldman wanted the May 2017 suit tossed, but before oral arguments, the parties reach a settlement which one shareholder objected to, and the settlement was later denied by Vice Chancellor Sam Glasscock.

The lawsuit takes aim at Goldman’s stock incentive plan, which allowed the company to issue, on average, $605,000 per year in compensation to non-employee directors. Shareholders claim the average compensation for similar companies was $350,000, and that the company’s net revenue and net income were comparatively lower than its peers.

Shareholders claim they were in the dark about the plan before voting in favour of it, while Goldman argued that the shareholder had no standing to challenge the plan.

But Glasscock disagreed with Goldman’s claim that, in approving the stock incentive plan, shareholders waived a right to a fairness review.

“[T]he language of the SIPs is inadequate to support such a waiver,” Glasscock found. “Waiver as a defense requires that the waiving party has voluntarily, and intentionally, relinquished a known right.”

The ruling concluded that the lawsuit adequately alleges facts that challenge the fairness of the compensation.

“This matter involves the quintessence of director self-interest: self-compensation,” Glasscock wrote. In allowing the shareholder’s lawsuit to go forward, Glasscock noted that the case is not “particularly strong” but that a “low pleading burden regarding director compensation” had been met.

The ruling did, however, grant Goldman’s request to dismiss a breach of fiduciary duty claim alleging misleading disclosures and omissions concerning the tax deductibility of cash-based incentive awards.

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