Contact us with your California corporate & securities law questions (949) 353-6347 or Contact us here

Suing The CEO For Social Activism Is Likely To Be Challenging Under Nevada Law

Yesterday's post concerned asked the question whether shareholders can sue CEOs for social activism.  The answer is of course, yes.  The more interesting question is whether shareholders will win the suit.  To answer that question, one must first decide on what law applies.  Although many may assume that the law of the state of incorporation should govern, I have questioned that assumption.  See Officers And The Business Judgment Rule.

In Nevada, there is no question that a CEO generally enjoys the protection of the business judgment rule because NRS 78.138(3) provides that directors and officers "in deciding upon matters of business, are presumed to act in good faith, on an informed basis and with a view to the interests of the corporation".  However, a shareholder challenging a CEO decision may argue that a decision motivated entirely by social concerns is not making a decision "upon matters of business".  If that is the case, then the statutory predicate is not satisfied and the statutory presumption does not inure to the officer.

A shareholder who gets past the business judgment rule will also have to contend with NRS 78.138(4) which provides that directors and officers may consider other constituencies and interests.  Currently, these include, without limitation, the interests of "the community and of society".  Nevada does not stop at authorizing consideration of these matters.  NRS 78.138(6) immunizes their decision by providing that NRS 78.138(4) does not "create or authorize any causes of action against the corporation or its directors or officers".

Note to readers:  This spring, the Nevada legislature amended NRS 78.138. These amendments take effect on October 1, 2017.  I'll have more to say about those amendments in a future post.

Share on:

Nevada Corporations, officer liability, business judgment rule, CEO, NRS 78.138, other constituency statute, social activism

ANY QUESTIONS REGARDING CALIFORNIA CORPORATE AND SECURITIES LAW? CONTACT US DIRECTLY

We offer expert advice with the intricacies of California law.

Our years of experience and expertise allow us to help clients navigate the business laws in California.

CONTACT US

Get the latest news and analysis about California Corporate & Securities law. Subscribe to our newsletter today!

We respect your email privacy

ABOUT OUR AUTHOR

30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
(949) 353-6328
 Contact me
Learn More About Keith

nominee-badge

Get the latest news and analysis about California Corporate & Securities law. Subscribe to our newsletter today!

We respect your email privacy

CATEGORIES

see all

RECOGNITION

YOUTUBE

FACEBOOK