## Facts

- An IBM shareholder brought a derivative action challenging board-approved compensation during a period of declining corporate profitability.
- The complaint attacked (1) allegedly excessive executive compensation and (2) allegedly excessive compensation for outside directors, asserted as self-dealing.
- IBM’s board had 18 directors, including a large majority of outside directors.
- The complaint alleged that outside director compensation was increased to $55,000 plus 100 shares of IBM stock and claimed the increase was excessive relative to IBM’s performance and cost-of-living measures.
- The shareholder made no pre-suit demand on the board, asserting demand futility because directors allegedly had personal interests and breached fiduciary duties.
- Defendants moved to dismiss for failure to make demand under N.Y. Bus. Corp. Law § 626(c) and for failure to state a claim, including failure to plead corporate waste.

## Issues

1. Whether pre-suit demand under N.Y. Bus. Corp. Law § 626(c) was excused as futile for claims challenging executive compensation.
2. Whether pre-suit demand was excused as futile for claims challenging outside director compensation set by the directors themselves.
3. Whether the complaint stated a claim for corporate waste based on outside director compensation.

## Decision

- The Court of Appeals affirmed dismissal.
- Demand was not excused for the executive-compensation claims because the complaint did not plead particularized facts showing that a majority of the board was interested, lacked independence, or could not exercise business judgment regarding those decisions.
- For outside director compensation, the court recognized that directors are interested when voting on their own pay, which can support demand excusal in principle, but only if the complaint pleads with particularity that the compensation is excessive.
- The corporate waste claim based on outside director compensation was dismissed because the allegations of excessiveness were conclusory and lacked particularized facts meeting the demanding waste standard.

## Legal Principles

- In a New York shareholder derivative action, the complaint must plead with particularity either the plaintiff’s efforts to obtain board action or specific reasons demand was not made. N.Y. Bus. Corp. Law § 626(c).
- Naming all directors as defendants and alleging fiduciary breach, without more, does not establish demand futility.
- Directors are interested for demand-futility purposes when they approve their own compensation, but demand excusal still requires particularized allegations that the compensation is excessive.
- A corporate waste claim requires allegations showing consideration so disproportionate that no person of ordinary, sound business judgment could view the transaction as a fair exchange; generalized claims of poor performance and “excessive” pay are insufficient without detailed factual support.

## Conclusion

The court held that demand is generally required in New York derivative suits and is excused only on particularized factual showings; director self-compensation can create interest for demand-futility analysis, but conclusory allegations of excessiveness do not state corporate waste or otherwise permit the action to proceed.


Marx v. Akers, 88 N.Y.2d 189 (N.Y. 1996)