David J. Berger is a partner at Wilson Sonsini Goodrich & Rosati. This post is based on a WSGR publication by Mr. Berger, Amy Simmerman, Katherine Henderson, and Brad Sorrels, and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes The Untenable Case for Perpetual Dual-Class Stock by Lucian Bebchuk and Kobi Kastiel (discussed on the Forum here), and The Geography of MFW-Land, by Itai Fiegenbaum.
On December 11, 2017, the Delaware Court of Chancery issued a decision that will be important for companies looking to implement measures to extend or make changes to dual-class voting structures and for companies with controlling stockholders. The decision addressed stockholder fiduciary duty challenges to a recapitalization undertaken by NRG Yield, Inc. (the “Company”), which, prior to the recapitalization, had a dual-class stock structure and a controlling stockholder. The court held that the transaction was conflicted because it was specifically designed to benefit the controlling stockholder. Despite this conflict, the court dismissed the litigation because of the process employed by the Company in adopting the recapitalization.