In re Loral Communications and the Possible Antipathy Towards Activist Shareholders: A Prognostication (Part 4)

We don’t disagree with the determination about independence in Loral.  The evidence, even if conclusory, suggested at least the possibility that the directors were too closely connected to MHR to be considered independent.  There were preexisting personal relationships and some (albeit conclusory) evidence of outside business relationships.  The two directors at issue even solicited business from MHR.  Indeed, as we have argued, the standard used in Loral ought to be the standard applicable in all cases challenging independence.

But, based upon past decisions, it has not.  Perhaps VC Strine is changing the law and adopting a more reasonable standard for showing a lack of independence.   Perhaps "structural bias" and preexisting friendships will play a larger role in the analysis of independence in the future.  The next case or two on the independence issue will demonstrate whether or not this is the case. 

Our prediction?  The standard in this case will be limited to activist shareholders.  Conclusory allegations, reliance on structural bias, and overlapping board positions will not be enough to challenge the independence of directors tied to the company and the CEO but will be enough to show a lack of independence for directors tied to an activist shareholder.

One thing is for certain.  The conclusion that the standard in the case arose in part because of the type of shareholder involved would have been much tougher to reach but for the external writings and musings of the Vice Chancellor writing the opinion.  The opinion and a number of pleadings are filed on the DU Corporate Governace web site.