## Facts

- A Navigant Consulting, Inc. shareholder brought a derivative action on behalf of the corporation against certain directors and officers, alleging breaches of fiduciary duty, corporate waste, unjust enrichment, and proxy-related misstatements or omissions.
- The complaint challenged the board’s approval of executive compensation during a period of alleged stock-price decline.
- Navigant’s compensation committee operated under a written charter requiring consideration of specified factors in setting pay; the complaint alleged the committee and board failed to follow the charter for 2010 compensation.
- In 2011, shareholders cast a “say-on-pay” vote rejecting the board-recommended compensation package; the proxy statement described the vote as advisory and nonbinding.
- The board implemented the compensation plan despite the negative advisory vote.
- The plaintiff made no pre-suit demand on the board, alleging demand would have been futile because the directors approved the challenged compensation.

## Issues

1. Whether the plaintiff pleaded demand futility with the particularity required by Federal Rule of Civil Procedure 23.1 and Delaware demand-futility doctrine.
2. Whether allegations of “excessive” compensation, stock-price decline, and a negative advisory say-on-pay vote created a reasonable doubt that directors were disinterested and independent or that the compensation decision was a valid exercise of business judgment.

## Decision

- The court granted the defendants’ motion to dismiss under Rule 23.1 for failure to plead demand futility with particularized facts.
- The court dismissed the complaint without prejudice.
- Given the threshold Rule 23.1 deficiency, the court did not need to resolve the alternative Rule 12(b)(6) arguments in any extended way.

## Legal Principles

- In a shareholder derivative action, Rule 23.1 requires pleading either a pre-suit board demand or particularized facts showing why demand would have been futile.
- Under Delaware law, demand is excused only if pleaded facts create a reasonable doubt that (1) a majority of the board is disinterested and independent or (2) the challenged decision was a valid exercise of business judgment.
- Board participation in approving a challenged transaction, without more, does not establish lack of independence or disinterestedness; the pleading must show a substantial likelihood of personal liability or another disabling interest.
- Executive compensation decisions are generally protected by the business-judgment rule absent particularized allegations of bad faith, fraud, self-dealing, or waste.
- A negative “say-on-pay” vote, where disclosed as advisory and nonbinding, does not itself establish demand futility or rebut business-judgment deference.
- Corporate waste requires allegations showing consideration so inadequate that no rational person could view it as fair; conclusory “excessive pay” allegations tied to poor performance or shareholder disapproval are typically insufficient without more.

## Conclusion

The court held that the derivative plaintiff failed to plead demand futility with the specificity required by Rule 23.1 and Delaware law, and that disagreement with executive-compensation decisions—including proceeding after a negative advisory say-on-pay vote—did not, without particularized facts showing bad faith or disabling director interest, permit bypassing the board-demand requirement.


Gordon v. Goodyear, No. 12 C 369 (N.D. Ill. July 13, 2012)