Amalgamated Bank v. Yahoo! Inc.

Facts

In July 2012, the Board hired Marissa Mayer as Yahoo's new CEO. Henrique de Castro, also an executive of Google, expressed interest in serving as Mayer's number at Yahoo. Mayer informed the Compensation Committee that she was in discussions with someone to take the number two role. A meeting was held to give Mayer 'guidance on potential compensation parameters.' She kept the name of the party secret but indicated any hiring would require a significant compensation package. Mayer described an expected compensation package as '$15 million per year (with $40 million as part of that upfront in a four-year grant) and a $16 million or more make-whole payment.' Paulin of Frederic W. Cook & Co. was the Committee's compensation consultant. Paulin advised the Committee that the proposed compensation was 'generally more than the data supported for a number two executive in peer companies.' He thought the Committee could justify this compensation,' even though he still did not know the candidate's name. Mayer got authorization to continue 'subject to Committee review of the actual contract.' Mayer eventually presented a term sheet and emphasized the candidate’s expertise in display-ads. Mayer got approval to continue to talk. The next day the Committee learned that de Castro was the secret candidate. Mayer presented a proposed offer letter, but the Committee did not get any materials analyzing the different components of the offer. Mayer got the authority to continue to negotiate with member Webb having authority to approve non-material changes and the Committee retaining authority over material changes. The offer included Incentive Restrict Stock, Performance Stock, and Make-Whole Stock. The first was vested 25% in November 2013 with the rest vesting equally over 36 months and worth $20 million. The second was also $20 with 4 vesting dates in equal shares starting in July 2013 and then in January for each new year. The third had a value of $16 million and vest equally in 48 monthly installments over a four-year period starting in December 2012. The total value was $56 million. Termination could be with or without cause. With cause, and de Castro would forfeit all unvested equity. With cause was defined in the contract. If the termination was without cause, de Castro would keep all of the Equity Awards that had vested through his termination date, plus a portion of his unvested Equity Awards that would vest on an accelerated basis. Once presented the Committee received no analysis of all the terms listed in the contract. The Committed spent 30 minutes reviewing the offer letter. The Board met to discuss the offer, and it too received nothing about how the agreement would function. The Board got nothing about how the accelerated vesting would operate. The Board approved the offer. De Castro objected to some of the terms. He wanted accelerated vesting for a larger number of the different types of stock. He wanted the tail period extended from 6 months to 12 and did not want a cut back on the shares. Once again, the Committee did not receive any kind of analysis for the changes requested. The Committee did not hire its own consultant to analyze what was going on with the offer. They approved the requested changes. Another offer letter was prepared, and Mayer made three changes that materially increased the compensation package. She increased the tail period, eliminated the Specified Percentage and eliminated the time-weighted scale and provided that 100% of the grant could accelerate if terminated without cause. In the end, termination without cause was dramatically favorable to de Castro. A termination for 12 days of service would increase the value of the payout by $21 million or 263%.  After one year, the termination would increase by $11.5 million or by 94%. D hired de Castro. The pay package was $39.2 million in the first year. De Castro failed miserably at his job. D’s advertising revenue declined. Fourteen months after starting, Mayer decided to fire him without cause. It was approved, and yet no one even questioned that the costs of the firing would be. The firing was approved over the phone with no full analysis of what they were doing or the consequences. The Committee finally met and actually discussed what would happen after the fact. D finally informed its shareholders that it would cost $59.96 million in severance. P then made a demand for books and records relating to this matter. D declined to provide any documents other than what the Board or a committee had reviewed. The record at trial established that the Board-Level Materials did not include documents that Mayer had reviewed, but which the full Board or a committee had not reviewed. D signed a confidentiality agreement. D produced 677 pages of documents. The production did not include documents that Mayer reviewed that had not gone to the full Board or a committee. P requested eleven more categories of documents. D denied the request. P filed this action. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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