Boards and their advisors seeking to navigate the culture wars and their often conflicting pressures from a variety of stakeholders and outside groups may find some comfort and guidance in this recent decision from the Delaware Chancery Court in Simeone v. The Walt Disney Company.  The case involved a books-and-records demand from a stockholder asserting a potential breach of fiduciary duty by Disney’s directors and officers in their determination to publicly oppose Florida’s so-called “Don’t Say Gay” bill. Originally, Disney was silent on the bill. However, following reproaches from employees and other creative partners, Disney’s board deliberated at a special meeting, and the company changed course and publicly criticized the bill.  The Court declined to grant the plaintiff’s books-and-records request, concluding that the plaintiff had not provided a credible basis from which to infer wrongdoing and thus had not “demonstrated a proper purpose to inspect books and records.” Rather, the Court concluded, the Disney board had made a business decision to reverse course—“a decision that cannot provide a credible basis to suspect potential mismanagement irrespective of its outcome.”  Under Delaware’s business judgment rule, directors have “significant discretion to guide corporate strategy—including on social and political issues.”  Importantly, the Court confirmed that, in exercising its business judgment, a board may take into account the interests of non-stockholder corporate stakeholders where those interests are “rationally related” to building long-term value.

Background. In February 2022, the Florida House passed HB 1557, which “limits instruction on sexual orientation or gender identity in Florida classrooms.” As described by the Court, because Disney had provided financial support for some of the bill’s sponsors, it “came under scrutiny,” and its response—an internal memo indicating that it supported organizations that championed diversity—was “met with pervasive disappointment and frustration from Disney employees and creative partners.” When the bill was subsequently passed in the Florida Senate, Disney’s board held a special meeting devoted to “Political Engagement and Communications,” at which the board discussed its “communications plan, philosophy and approach regarding Florida legislation and employee response.” At the Disney annual stockholders’ meeting the next day, the company’s CEO acknowledged that the company’s original behind-the-scenes approach to engagement on the bill “didn’t quite get the job done.” He signaled plans for more active public opposition and reported on his call with the state’s Governor, during which he had expressed “disappointment and concern” about the bill. At a regular board meeting that same day, the board again discussed the Florida legislation, company values and political engagement.  The next day, the Governor criticized companies “‘like [] Disney,’” stating that “Florida policy should be ‘based on the best interest of Florida citizens, not on the musing of woke corporations.’”

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