California Lawyers Association

A Delaware Court of Chancery Opinion on Directors’ Fiduciary Duties and ESG

November 2023

By Suzanne L. Weakley
CLA ESG Committee

A recent Delaware case, Simeone v Walt Disney Co. (Del. Ch. June 27, 2023, No. 2022-1120-LWW) 2023 Del Ch Lexis 154, provides helpful guidance for boards of directors in navigating environmental, social, and governance (ESG) controversies. The court found that the Disney board’s decision to publicly oppose Florida’s so-called “Don’t Say Gay” law was a legitimate business decision, holding that: 

A board may conclude in the exercise of its business judgment that addressing interests of corporate stakeholders—such as the workforce that drives a company’s profits—is “rationally related” to building long-term value. Indeed, the plaintiff acknowledges that maintaining a positive relationship with employees and creative partners is crucial to Disney’s success. It is not for this court to ‘question rational judgments about how promoting non-stockholder interests­—be it through making a charitable contribution, paying employees higher salaries and benefits, or more general norms like promoting a particular corporate culture—ultimately promote stockholder value.’ [citing eBay Domestic Hldgs., Inc. v Newmark (Del Ch 2010) 16 A3d 1, 34]

The court in Simeone stated that “Delaware law vests directors with significant discretion to guide corporate strategy—including on social and political issues.” The Florida law (Fla Stat Ann §1001.42(8)(c)(3)) limited instruction on sexual orientation and gender identity in Florida classrooms. Disney employees demanded that the company take a public stand against the law. Disney’s board initially refused but then, after deliberation, issued a public statement that the law should not have been enacted and should be struck down by the courts. 

The Simeone case concerned the plaintiff-shareholder’s right to inspect corporate books and records; however, the court found that the plaintiff’s inspection request did not have a proper purpose and was pretextual. There was no evidence of corporate mismanagement or wrongdoing, and the board’s decision to speak (or not speak) on a political issue was an ordinary business decision. The court found that the board was faced with widespread backlash from the company’s staff and creative talent and that its consideration of employee concerns was not at the expense of stockholders.

The preceding summary of the Simeone case is an excerpt from the 2024 update of CEB’s title, Understanding Fiduciary Duties in Business Entities (Cal CEB), © The Regents of the University of California. Any further use is prohibited.

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