[On October 1, 1995, Disney hired as its president Michael S. Ovitz, who was a long-time friend of Disney Chairman and CEO Michael Eisner. At the time, Ovitz was an important talent broker in Hollywood. Although he lacked experience managing a diversified public company, other companies with entertainment operations had been interested in hiring him for high-level executive positions. The employment agreement approved by the board of directors then in office (Old Board) had an initial term of five years and required that Ovitz ‘‘devote his full time and best efforts exclusively to the Company,’’ with exceptions for volunteer work, service on the board of another company, and managing his passive investments. In return, Disney agreed to give Ovitz a base salary of $1 million per year, a discretionary bonus, and two sets of stock options (the ‘‘A’’ options and the ‘‘B’’ options) that collectively would enable Ovitz to purchase 5 million shares of Disney common stock. The ‘‘A’’ options were scheduled to vest in three annual increments of 1 million shares each, beginning at the end of the third full year of employment and continuing for the following two years. The agreement specifically provided that the ‘‘A’’ options would vest immediately if Disney granted Ovitz a non-fault termination of the employment agreement. The ‘‘B’’ options, consisting of 2 million shares, were scheduled to vest annually starting the year after the last ‘‘A’’ option would vest and were conditioned on Ovitz and Disney first having agreed to extend his employment beyond the five-year term of the employment agreement. In addition, Ovitz would forfeit the ‘‘B’’ options if his initial employment term of five years ended prematurely for any reason, even if from a non-fault termination. 

   The employment agreement provided three ways for Ovitz’ employment to end. He might serve his five years and Disney might decide against offering him a new contract. If so, Disney would owe Ovitz a $10 million termination payment. Before the end of the initial term, Disney could terminate Ovitz for ‘‘good cause’’ only if Ovitz committed gross negligence or malfeasance, or if Ovitz resigned voluntarily. Disney would owe Ovitz no additional compensation if it terminated him for ‘‘good cause.’’ Termination without cause (non-fault termination) would entitle Ovitz to the present value of his salary payments remaining under the agreement, a $10 million severance payment, an additional $7.5 million for each fiscal year remaining under the agreement, and the immediate vesting of the first 3 million stock options (the ‘‘A’’ Options).

   Soon after Ovitz began work, problems surfaced and the situation continued to deteriorate during the first year of his employment. The deteriorating situation led Ovitz to begin seeking alternative employment and expressing his desire to leave the Company. On December 11, 1996, Eisner and Ovitz agreed to arrange for Ovitz to leave Disney on the non-fault basis provided for in the 1995 employment agreement. The board of directors then in office (New Board) approved this by authorizing a ‘‘non-fault termination’’ agreement with cash payments to Ovitz of almost $39 million and the immediate vesting of 3 million stock options with a value of $101 million.

   Shareholders brought a derivative suit alleging that: (a) the Old Board had breached its fiduciary duty in approving an extravagant and wasteful employment agreement of Michael S. Ovitz as president of Disney and (b) the New Board had breached its fiduciary duty in agreeing to an extravagant and wasteful ‘‘non-fault’’ termination of the Ovitz employment agreement. The plaintiffs alleged that the Old Board had failed properly to inform itself about the total costs and incentives of the Ovitz employment agreement, especially the severance package, and failed to realize that the contract gave Ovitz an incentive to find a way to exit the Company via a non-fault termination as soon as possible because doing so would permit him to earn more than he could by fulfilling his contract. They alleged that the corporate compensation expert, Graef Crystal, who had advised Old Board in connection with its decision to approve the Ovitz employment agreement, stated two years later that the Old Board failed to consider the incentives and the total cost of the severance provisions. The defendants moved to dismiss, and the Court of Chancery granted the motion. The shareholders appealed.]

   This is potentially a very troubling case on the merits. On the one hand, it appears from the Complaint that: (a) the compensation and termination payout for Ovitz were exceedingly lucrative, if not luxurious, compared to Ovitz’ value to the Company; and (b) the processes of the boards of directors in dealing with the approval and termination of the Ovitz Employment Agreement were casual, if not sloppy and perfunctory. [T]he processes of the Old Board and the New Board were hardly paradigms of good corporate governance practices. Moreover, the sheer size of the payout to Ovitz, as alleged, pushes the envelope of judicial respect for the business judgment of directors in making compensation decisions. Therefore, both as to the processes of the two Boards and the waste test, this is a close case.

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   This is a case about whether there should be personal liability of the directors of a Delaware corporation to the corporation for lack of due care in the decisionmaking process and for waste of corporate assets. This case is not about the failure of the directors to establish and carry out ideal corporate governance practices.

   All good corporate governance practices include compliance with statutory law and case law establishing fiduciary duties. But the law of corporate fiduciary duties and remedies for violation of those duties are distinct from the aspirational goals of ideal corporate governance practices. Aspirational ideals of good corporate governance practices for boards of directors that go beyond the minimal legal requirements of the corporation law are highly desirable, often tend to benefit stockholders, sometimes reduce litigation and can usually help directors avoid liability. But they are not required by the corporation law and do not define standards of liability. [Citation.]

   The inquiry here is not whether we would disdain the composition, behavior and decisions of Disney’s Old Board or New Board as alleged in the Complaint if we were Disney stockholders. In the absence of a legislative mandate, [citation], that determination is not for the courts. That decision is for the stockholders to make in voting for directors, urging other stockholders to reform or oust the board, or in making individual buy-sell decisions involving Disney securities. The sole issue that this Court must determine is whether the particularized facts alleged in this Complaint provide a reason to believe that the conduct of the Old Board in 1995 and the New Board in 1996 constituted a violation of their fiduciary duties.

   Plaintiffs claim that the Court of Chancery erred when it concluded that a board of directors is ‘‘not required to be informed of every fact, but rather is required to be reasonably informed.’’ [Citation.] * * * The ‘‘reasonably informed’’ language used by the Court of Chancery here may have been a short-hand attempt to paraphrase the Delaware jurisprudence that, in making business decisions, directors must consider all material information reasonably available, and that the directors’ process is actionable only if grossly negligent. [Citation.] The question is whether the trial court’s formulation is consistent with our objective test of reasonableness, the test of materiality and concepts of gross negligence. We agree with the Court of Chancery that the standard for judging the informational component of the directors’ decisionmaking does not mean that the Board must be informed of every fact. The Board is responsible for considering only material facts that are reasonably available, not those that are immaterial or out of the Board’s reasonable reach. [Citation.]

   Certainly in this case the economic exposure of the corporation to the payout scenarios of the Ovitz contract was material, particularly given its large size, for purposes of the directors’ decision-making process. [Court’s footnote: The term ‘‘material’’ is used in this context to mean relevant and of a magnitude to be important to directors in carrying out their fiduciary duty of care in decision-making.] And those dollar exposure numbers were reasonably available because the logical inference from plaintiffs’ allegations is that Crystal or the New Board could have calculated the numbers. Thus, the objective tests of reasonable availability and materiality were satisfied by this Complaint. But that is not the end of the inquiry for liability purposes.

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   * * * The Complaint, fairly construed, admits that the directors were advised by Crystal as an expert and that they relied on his expertise. Accordingly, the question here is whether the directors are to be ‘‘fully protected’’ (i.e., not held liable) on the basis that they relied in good faith on a qualified expert [citation]. * * *

   * * * Plaintiffs must rebut the presumption that the directors properly exercised their business judgment, including their good faith reliance on Crystal’s expertise. * * *

   * * * [T]he complaint must allege particularized facts (not conclusions) that, if proved, would show, for example, that: (a) the directors did not in fact rely on the expert; (b) their reliance was not in good faith; (c) they did not reasonably believe that the expert’s advice was within the expert’s professional competence; (d) the expert was not selected with reasonable care by or on behalf of the corporation, and the faulty selection process was attributable to the directors; (e) the subject matter (in this case the cost calculation) that was material and reasonably available was so obvious that the board’s failure to consider it was grossly negligent regardless of the expert’s advice or lack of advice; or (f ) that the decision of the Board was so unconscionable as to constitute waste or fraud. This Complaint includes no particular allegations of this nature, and therefore it was subject to dismissal as drafted.

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   We conclude that * * * the Complaint * * * as drafted, fails to create a reasonable doubt that the Old Board’s decision in approving the Ovitz Employment Agreement was protected by the business judgment rule. * * *

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   Plaintiffs’ principal theory is that the 1995 Ovitz Employment Agreement was a ‘‘wasteful transaction for Disney ab initio’’ because it was structured to ‘‘incentivize’’ Ovitz to seek an early non-fault termination. The Court of Chancery correctly dismissed this theory as failing to meet the stringent requirements of the waste test, i.e., ‘‘‘an exchange that is so one sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration.’’’ Moreover, the Court concluded that a board’s decision on executive compensation is entitled to great deference. It is the essence of business judgment for a board to determine if ‘‘a ‘particular individual warrant[s] large amounts of money, whether in the form of current salary or severance provisions.’’’ [Citation.]

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   * * * Irrationality is the outer limit of the business judgment rule. Irrationality may be the functional equivalent of the waste test or it may tend to show that the decision is not made in good faith, which is a key ingredient of the business judgment rule. [Court’s footnote: The business judgment rule has been well formulated by Aronson and other cases. (‘‘It is a presumption that in making a business decision the directors * * * acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation.’’) Thus, directors’ decisions will be respected by courts unless the directors are interested or lack independence relative to the decision, do not act in good faith, act in a manner that cannot be attributed to a rational business purpose or reach their decision by a grossly negligent process that includes the failure to consider all material facts reasonably available.]

   The plaintiffs contend in this Court that Ovitz resigned or committed acts of gross negligence or malfeasance that constituted grounds to terminate him for cause. In either event, they argue that the Company had no obligation to Ovitz and that the directors wasted the Company’s assets by causing it to make an unnecessary and enormous payout of cash and stock options when it permitted Ovitz to terminate his employment on a ‘‘non-fault’’ basis. We have concluded, however, that the Complaint currently before us does not set forth particularized facts that he resigned or unarguably breached his Employment Agreement.

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   Construed most favorably to plaintiffs, the facts in the Complaint (disregarding conclusory allegations) show that Ovitz’ performance as president was disappointing at best, that Eisner admitted it had been a mistake to hire him, that Ovitz lacked commitment to the Company, that he performed services for his old company, and that he negotiated for other jobs (some very lucrative) while being required under the contract to devote his full time and energy to Disney.

   All this shows is that the Board had arguable grounds to fire Ovitz for cause. But what is alleged is only an argument—perhaps a good one—that Ovitz’ conduct constituted gross negligence or malfeasance. * * *

   The Complaint, in sum, contends that the Board committed waste by agreeing to the very lucrative payout to Ovitz under the non-fault termination provision because it had no obligation to him, thus taking the Board’s decision outside the protection of the business judgment rule. Construed most favorably to plaintiffs, the Complaint contends that, by reason of the New Board’s available arguments of resignation and good cause, it had the leverage to negotiate Ovitz down to a more reasonable payout than that guaranteed by his Employment Agreement. But the Complaint fails on its face to meet the waste test because it does not allege with particularity facts tending to show that no reasonable business person would have made the decision that the New Board made under these circumstances.

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   To rule otherwise would invite courts to become super-directors, measuring matters of degree in business decision-making and executive compensation. Such a rule would run counter to the foundation of our jurisprudence.

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   One can understand why Disney stockholders would be upset with such an extraordinarily lucrative compensation agreement and termination payout awarded a company president who served for only a little over a year and who under-performed to the extent alleged. That said, there is a very large—though not insurmountable—burden on stockholders who believe they should pursue the remedy of a derivative suit instead of selling their stock or seeking to reform or oust these directors from office.

   [Dismissal affirmed in part, reversed in part, and case remanded.]