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Tyson Cheating Stockholders?

Mike

Well-known member
Judge Chandler refused to dismiss allegations that Tyson's compensation committee violated a fiduciary duty by acting disloyally and in bad faith regarding the option grants.

While spring-loading involves "a much more subtle deception" than backdating, Chandler suggested that the business judgment rule does not offer blanket protection against claims of spring-loading and "bullet-dodging," in which options are timed to avoid price drops from negative company news.

"A director who intentionally uses inside knowledge not available to shareholders in order to enrich employees while avoiding shareholder-imposed requirements cannot, in my opinion, be said to be acting loyally and in good faith as a fiduciary," the judge wrote.

Chandler noted, however, that spring-loading may be allowable with shareholder approval and proper disclosures, saying "the touchstone of disloyalty or bad faith in a spring-loaded option remains deception."

In a prepared statement, Tyson spokesman Gary Mickelson said company officials were pleased that Chandler had dismissed or curtailed six of the nine counts against the defendants, who include former board chairman Don Tyson and his son, chairman John Tyson.

"Much, if not all, of what remains in the case can be handled with additional motions, including those requesting summary judgment," he said. "Such motions may negate the need for any trial."

But Megan McIntyre, a plaintiff's attorney in the Tyson case, said Chandler's rulings amount to "a wake-up call."

"This is really one of the first rulings anywhere on the merits of a breach of fiduciary duty based on backdating and spring-loading," she said. Defendants in such cases "ought to be very concerned, because it's going to be very difficult for them to get these cases dismissed."

McGurn, the ISS executive, noted that while backdating appears to be a thing of the past, timing options remains a common practice that boards will be forced to re-examine in light of Chandler's rulings.

"From an investor's perspective, that's going to be a very good thing," he said.

Charles Elson, director of the University of Delaware's Center for Corporate Governance, said Chandler's rulings mark a significant step in judicial review of corporate behavior.

"He lays out the legal standard by which we will review backdating, and that's bad faith," Elson said.
 
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