In August 2022, Joe Slights joined the firm’s Delaware office as a partner after serving as a Vice Chancellor on the Delaware Court of Chancery—the country’s leading business court—for six years. Prior to that, Joe was a judge for the Delaware Superior Court, where he helped form that court’s Complex Commercial Litigation Division, which handles an array of important commercial and contractual disputes. Joe also previously enjoyed a successful career in private practice, focusing on corporate and complex litigation and alternative dispute resolution matters. During his time on the Court of Chancery, Joe presided over many of the nation’s highest-profile business disputes, including the trial over the Tesla/SolarCity transaction and litigations over busted deals and executive compensation. In this publication, Joe shares his reflections from his time serving as a judge and insights on corporate governance issues.
Q: Tell us in a nutshell what your experience was serving as a Vice Chancellor on the Delaware Court of Chancery, and why the Court matters to our clients.
Serving on the Court of Chancery was among the most rewarding experiences of my professional life. As a lifelong citizen of Delaware, I was keenly aware of the Court’s importance to our state and its citizens, both in its vital role resolving disputes involving trusts, estates, and adult guardianships among Delawareans, but also, and as important, in its role as the leading business court in the country. Delaware continues to lead the nation in chartering new corporations and alternative business entities. Once formed, these businesses remain “corporate citizens” of Delaware subject to our statutory law and courts. Companies have stayed in Delaware because our Division of Corporations provides world class service; our General Assembly, with guidance from our Corporation Law Council, constantly fine tunes our statutory General Corporation Law and various alternative entity statutes; and our Court of Chancery provides expert, prompt, and thoughtful dispute resolution for Delaware entities and their constituencies.
As for the Court’s role specifically, over several decades, the Court has developed a common law of corporations, particularly with respect to corporate governance, that is a model for the nation and infuses decision making at companies. These decisions that form our common law, or the so-called “canon of corporate law,” provide a roadmap of what to do, and what not to do, when business fiduciaries and their advisors are called upon to make important and sometimes transformational decisions on behalf of the companies they serve. I was honored to have the opportunity to contribute to that canon as Vice Chancellor. As one who is now “looking in from the outside,” I appreciate more than ever that having a navigator who can interpret these roadmaps and guide our business clients’ to their desired destination is critically important to their ongoing success.
Q: Could you provide some insight into how busy the Delaware courts are and some of their latest developments?
Data reveals that the Court of Chancery, on a weighted case basis (a metric that considers the complexity of the case), is among the busiest courts in the nation. Over the past two years, nearly 40 percent of all cases filed in the court were accompanied by a motion to expedite, where the plaintiff asked the court to fast-track the litigation and final resolution of the case. Expedition generally means that a case is resolved in a few short months instead of years, as is the case in many courts. These expedited cases are exciting and challenging; they are also incredibly burdensome on both the parties and the Court. In addition to the steady increase in requests for expedited scheduling, the total filings in the Court have increased year-over-year for more than a decade. These demands are why the Court was expanded from five to seven judges in 2018. That the Court is able to keep up with these increasing demands is a testament to the hard work and dedication of the judges and their staffs.
COVID-19 presented unique challenges for all courts, including the Court of Chancery. Fortunately, Chancery is a non-jury court, so the judges were able to utilize remote means, including Zoom, to keep the cases moving, including through trial. In fact, in the first three months of the pandemic, among seven judges, the Court of Chancery held more than 300 hearings and issued more than 500 rulings. Courts across the country faced backlogs but there was no backlog in Chancery.
In terms of latest developments, in my view, the Court is as strong as ever. Vice Chancellor Nathan Cook was recently sworn in and will complement an already strong, diverse, and responsive Chancery Bench.
Q: From the vantage point of the business world, what are the most important and notable issues being litigated in Delaware right now?
It is remarkable to me that a body of law decades in development can still be so fluid and nuanced. The Court of Chancery is continually confronted with a wide array of issues relating to business transactions, contracts, the corporate statutes, and the fiduciary duties of boards and officers. But there are some essential themes of late that are especially noteworthy for boards, management, investors, and their advisors.
Duty of oversight—or so-called Caremark—claims have gained renewed traction in the wake of a now-seminal decision from our Supreme Court, which clarified and arguably expanded the board’s responsibility to oversee and manage corporate risk and legal compliance. What we particularly see in these cases (for example, involving Boeing or Blue Bell Creameries) is that when a grave corporate crisis occurs and the board record, at least in the early stages of litigation, indicates a real absence of action or a response on the board’s part, a claim challenging the board’s compliance with its duty of oversight may go forward. These cases have highlighted important issues for boards and their advisors, such as what kinds of mechanisms a board should put in place to ensure proper oversight (for example, whether a board should have a committee dedicated to company-specific, mission-critical risks) and how vital it is that board minutes are thoughtfully prepared and reflect the board’s efforts. I can tell you that board minutes are absolutely critical evidence for a judge, and boards and their advisors can help themselves by having good, contemporaneous, descriptive minutes.
The concept of a controlling stockholder also continues to spawn litigation in Delaware. The theme in these cases is that where a stockholder (whether an individual human or an entity) possesses control over a company, in some circumstances, that stockholder takes on fiduciary duties to the other stockholders. As a result, if the company engages in a transaction, and the controller is the counterparty or gets a unique benefit in the transaction, then the court may closely scrutinize the transaction, absent certain procedural safeguards that the parties can use to earn more judicial deference. Various related questions that have come up are: When exactly does control exist, recognizing it can exist well under a majority stake? What does it mean for a controller to get a special benefit? How does a company “cleanse” these arguably conflicted transactions, such as through approval by an independent board committee and a disinterested stockholder vote? This area of the law is especially important for companies with influential founders or large investors.
And finally, the Court continues to refine the right of stockholders to access a corporation’s books and records. By this, I refer to the statutory right of stockholders to demand corporate documents, such as board minutes, where stockholders state a “proper purpose”—often, for example, to investigate corporate wrongdoing. The Delaware courts have long encouraged stockholder plaintiffs to exercise this right before bringing a lawsuit. Stockholders now do so frequently, especially, although not exclusively, in the public company context. Companies and stockholders continue to hammer out in court the exact parameters of this right, such as when texts and emails can be obtained and how vigorously a company should resist demands for inspection. A key takeaway for boards, management, and their advisors is that records can be obtained outside of the litigation context, even when the purpose is to investigate wrongdoing within the corporation.
Q: What do you think are the greatest challenges for corporations and Delaware law at this moment?
There is, rightly, significant focus on corporate purpose, the role of the corporation in our society and the role of environmental, social, and corporate governance considerations. I don’t necessarily think that this is a challenge for Delaware law, although it certainly deeply implicates Delaware corporate law issues. Delaware law provides that the purpose of the corporation ultimately is to maximize value for stockholders within the bounds of the law, and directors and officers are expected to facilitate this purpose in the exercise of their fiduciary duties. This expression of corporate purpose under Delaware law has recently been the subject of discussion within the corporate law academy and rather intense criticism among other commentators. But under Delaware’s business judgment rule, boards can, in many, many situations, take into account a wide range of considerations in determining how to advance stockholder value. We have also seen a meaningful increase in the use of the public benefit corporation form under Delaware law, allowing corporations to state a purpose other than enhancing stockholder value in their charters. But setting aside Delaware law considerations, corporations, boards, regulators, and investors can and will continue to navigate how investors will exert their influence on boards and management, how decisions will get made at companies, and what types of ESG disclosures will be required.
I also think corporations continue to struggle in their management of fiduciary conflicts, just as our courts are challenged by ever-evolving contexts in which these conflicts are alleged to have tainted fiduciary decision-making. Not only, as noted previously, are we seeing litigation over controlling stockholders, but courts continue to take a fact-intensive look at the common types of relationships—personal and economic—that can render a director conflicted vis-à-vis a party benefiting from a corporate decision. The plaintiffs’ bar employs creative means to investigate potential fiduciary conflicts, such as through the use of private investigators and scouring social media. Boards and board advisors must be more vigilant than ever in recognizing conflicts and, when appropriate, demonstrate a willingness to engage in a greater level of process to address and neutralize those conflicts.
Q: What are some tips you can offer for boards and their advisors based on your career and time as a judge?
First and foremost, collaborate. Delaware law expects collaboration, honesty, and collegiality among directors. Take advantage of individual and collective expertise on the board. Meet regularly, get board materials in advance to the extent possible, and do your best to be prepared. Recruit independent and diverse voices. And manage conflicts aggressively. Remember that when unconflicted fiduciaries make decisions with a proper process, Delaware law presumes that they are fully informed and acting in good faith to advance the best interests of the corporation and its stockholders. Delaware law remains very focused on process.
Finally, it is worth repeating that board minutes and the board record are critical in governance litigation. And watch emails, texts, and other similar communications, which can be and often are discovered in litigation. We all tend to be less thoughtful and deliberate when we communicate through these less formal means, yet emails and texts often take on very prominent roles when corporate disputes are litigated in court. Accordingly, when discussing business, these communications should be composed with the expectation that they will be scrutinized by others outside of the organization.
Q: What will your practice look like at our firm?
My role at the firm will be to help enhance the impressive entity practice the Delaware team has already built by adding another unique and useful perspective for our existing and new clients. In particular, I hope to enrich the firm’s already thriving corporate governance work, by counseling Delaware entities as they face challenges that implicate Delaware law, representing special transactional and litigation committees of fiduciaries as they make important decisions in the midst of potential conflicts, and advising our clients as they navigate the challenges of litigation. I also hope to assist our courts by providing services as an alternative dispute resolution neutral.
For more information about the Delaware courts and corporate law, please contact Wilson Sonsini’s corporate governance practice or corporate governance litigation practice.