Page 28 - Delaware Lawyer - Fall 2022

FEATURE | PEACEFUL COEXISTENCE?
threat to corporate policy and effectiveness under the first prong of Unocal. The Court recognized “ESG activism” — designed to influence corporate policy regarding en- vironmental, social and governance issues — as an emerging form of “stockholder activism.”23
The Williams Court reached no specific normative conclusions about ESG activ- ism, although the Chancellor acknowl- edged that many varieties of stockholder activism could be beneficial to a corpora- tion. While the Court stated that stock- holder activism was directed to the board of directors and could result in a proxy contest if opposed, the opinion does not suggest how directors should respond to stockholder ESG proposals. Rather, the Court concluded that “[v]iewing all stock- holder activism as a threat is an extreme manifestation of the proscribed we-know- better justification for interfering with the [stockholder] franchise.”24
A Chancery Court complaint filed by
an activist investor on October 3, 2022 — McRitchie v. Zuckerberg25 — may result in fresh judicial insight on the Delaware “shareholder primacy” model, if not on the proper responses of a board of direc- tors to “ESG activism.” McRitchie was filed by a common stockholder as a class and derivative action for breach of fidu- ciary duty against Meta Platforms, Inc. (formerly Facebook) and its board of di- rectors. The plaintiff calls himself “a diver- sified stockholder of Meta, meaning that he has invested a sufficient portion of his portfolio in additional equity securities to ensure that he receives the higher market returns that accompany the risks of re- sidual equity securities without incurring the idiosyncratic risk associated with con- centrated investments in such securities.”26 He does not claim to be any other kind of “stakeholder.”
The plaintiff alleges that the time-hon- ored Delaware doctrine of shareholder pri- macy does not work for such a huge global
company as Meta. He contends that the Meta board defendants, especially Mark Zuckerberg, constitute a “controlling sub- set” of the company, benefiting from high- voting dual class stock and from corporate governance and stock ownership guide- lines that cause them to maximize the financial value of the company while un- dermining the global economy. McRitchie argues that the Meta directors, with their concentrated Meta holdings, disregard the “core constituency” of diversified stock- holders “in favor of a blinkered (and out- dated) approach to financial success.” He expressly relies on “portfolio theory” to support his claims.27
Although the 76-page complaint does not mention ESG, the rhetorical referenc- es to non-stockholder interests are omni- present. For example, McRitchie contends that Meta monitors only risks posed to the company by such ESG investment indica- tors as human rights, community safety and public health, rather than the risks to
26 DELAWARE LAWYER FALL 2022