sorry for dragging one one simple question. somehow the facts of matter mixed along the conversation. here is it again:
the director/shareholder and senior officer has economical dispute with the privet Delaware company regarding his employment agreement. the director holds about 7% of the company.
in that case who is the authority that must interact with the director for example termination of its employment at the company, the CEO or the Board?
A: Officers of a corporation serve at the pleasure of the board of directors. It is up to the board to deal with an employment issue concerning a corporate officer, unless the CEO can deal with the issue to the officer's satisfaction.
the company can claim the the director for fiduciary since he claims against the company (for example that because of the dispute he will sue the company) and ask the director not to participate at board because of conflict of interest.
this leads to a situation that in any dispute case regarding employment relationship of a director/shareholder can be exposed to illegal action since he harm the company (which mean not acting to the best interest of the company - fiduciary).
A: I must respectfully XXXXX XXXXX your analysis and conclusion here. Under the same argument that the officer/director cannot be involved in the board's resolution of the dispute, the entire board and the CEO could also be disqualified -- they are all involved in the dispute, and so they are all conflicted. This would lead to the absurd result that no one would be able to make a decision. The board cannot force the officer/director out of participation.
this must be common issue and I'm surprise the Delaware law is not saying how in general disputes which involves a personal employee interest of a director with the company.
A: Delaware Code Title 8 Section 144 provides as follows:
(a) No contract or transaction between a corporation and 1 or more of its directors or officers, or between a corporation and any other corporation, partnership, association, or other organization in which 1 or more of its directors or officers, are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee which authorizes the contract or transaction, or solely because any such director's or officer's votes are counted for such purpose, if:
(1) The material facts as to the director's or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to the director's or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee or the stockholders.
(b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction.
As can be seen from the above, the officer/director cannot be excluded from the board of directors meeting, as long as the director's interest in the transaction is disclosed; and the terms of the transaction are fair to the corporation. This section of law accords with the Nixon
case law that I previously cited, which calls for the court to carefully scrutinize the fairness of any transaction in which there is a possibility of breach of fiduciary or loyalty.
I realize that you are looking for some absolutely on point law that explains your rights precisely. However, Delaware corporations law is written so as to permit corporations to operate flexibly, and for the Delaware courts to be able to rule on cases based upon their unique facts. Trying to impose a strict set of rules into this circumstance will not succeed -- because no strict set of rules exists. If it did, then most of the corporations which have chosen Delaware as their place of incorporation would leave the state for a jurisdiction where the laws are flexible.
Fortunately, that jurisdiction is still Delaware.
The botXXXXX XXXXXne is that the director/officer can bring this dispute to the board, and he can vote on the outcome, as long as the facts in dispute are fully disclosed to the board, and any decision made is fair to the corporation.
Hope this helps.