Business Vantage Point Blog

When a board of directors of a Delaware corporation approves a significant payment to a company leader — whether in cash, equity or some other form — the business relationships among the directors can attract scrutiny. Generally, Delaware affords significant deference to a board’s decision-making under the business judgment rule. However, when a transaction involves an interested party, a higher standard may apply.

Section 144(a) of the Delaware General Corporation Law (DGCL) addresses the requirements to properly approve an interested-party transaction and provides safe harbors for interested director and officer transactions. The director-approval safe harbor generally requires informed approval by a majority of disinterested directors acting in good faith and without gross negligence. Amendments to Section 144(d)(2) adopted in 2025 specifically address the heightened presumption of disinterestedness for directors whom the board determines satisfy applicable stock-exchange independence standards, and the substantial and particularized facts required to rebut that presumption.

A recent decision from the Delaware Court of Chancery — the first to interpret this provision — clarifies that business connections alone do not overcome the heightened presumption of disinterestedness but rather that a plaintiff must plead substantial and particularized facts showing how those connections could impair a director’s objective judgment.

What Happened in Ayers

In Ayers v. Foley, the Chancery Court issued an important decision interpreting the new stronger presumption of director disinterestedness under Section 144(d)(2) of the DGCL, which applies to directors of companies with a class of stock listed on a national securities exchange when the board determines that they satisfy the applicable stock-exchange independence standards and they are not parties to the transaction at issue. A stockholder challenged a $50 million equity grant to Fidelity National Financial’s founder and non-executive chairman, William Foley, along with compensation awarded to other directors. The court dismissed the claims concerning Foley’s grant because the stockholder had not sufficiently explained why the board could not fairly decide whether the company should bring a lawsuit over Foley’s grant. Mere allegations of shared board seats, business connections and minority co-investments did not sufficiently explain how those relationships could compromise the directors’ judgment.

The important distinction was between having a connection and having a connection that could affect judgment. The stockholder needed to explain why the relationships mattered to the particular directors, rather than simply identify their existence. The court also emphasized that the strength of the alleged facts, and not the length of the list, determines whether the presumption can be overcome. The directors’ own compensation was another matter. Claims against directors who approved their own pay were allowed to proceed because the plaintiff adequately alleged unfair dealing and excessive compensation. Unjust enrichment claims also survived against directors who merely received the compensation, even though they did not participate in approving it.

Significance of Ayers for Delaware Corporations

For Delaware corporations with stock listed on a national securities exchange, a board’s determination that a director meets the applicable stock-exchange independence standards now carries greater weight. When the director is not a party to the transaction, a challenger must allege substantial, specific facts showing a material interest in the transaction or a material relationship with someone who has such an interest.

There are a few practical lessons from this case:

• Assess independence for the decision at hand. An independent-director designation is valuable, but it does not answer every potential conflict question. Consider whether financial interests or relationships could affect a director’s ability to evaluate the specific proposal objectively.
• Document a genuine review process. Record the advice received, alternatives considered and reasons for approval. The separate committee review of Foley’s grant helped distinguish it from the directors’ own pay.
• Give director compensation separate attention. Directors approving awards to themselves cannot rely on this heightened presumption for that decision.

The Ayers case reinforces the position of qualifying independent directors for corporations with stock listed on a national securities exchange, but it does not replace sound governance. A clearly documented, transaction-specific review remains essential, especially when compensation is involved. Boards should look beyond a director’s independence designation and consider whether particular interests or relationships could affect judgment on the decision at hand. The stronger presumption offers meaningful protection, not blanket immunity, and directors setting their own pay cannot rely on this presumption.