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In re The Goldman Sachs Group, Inc. Shareholder Litigation

Delaware Court of Chancery
2011 WL 4826104 (Del. Ch. Oct. 2011)


The Goldman Sachs Group (Goldman) compensates employees on a “pay for performance” theory. Goldman’s management provides revenue estimates and proposes a compensation ratio to the Compensation Committee, which compares competitors’ ratios. From 2007 to 2009 Goldman’s directors (defendants) proposed compensation around 44 percent of net revenues each year, immediately after Goldman was saved from financial ruin by a government bailout. Goldman’s shareholders (plaintiffs) sued, alleging that the compensation structure encouraged employees to pursue risky investments to the detriment of shareholders. The plaintiffs claimed that employees leveraged Goldman’s assets more than competitors, because the shareholders bore the risk while earning only 2 percent of the revenue in dividends. In 2008, one group earned $9.06 billion in net revenue, but wound up losing $2.7 billion after bonuses. Goldman’s Audit Committee oversaw risk, but the plaintiffs argue that it failed. The plaintiffs claim Goldman took positions in conflict with shareholders and profited while they lost equity. The plaintiffs asked the Delaware Court of Chancery for equitable relief on the grounds that the directors breached fiduciary duties because: (1) a majority of the directors who approved the compensation plan were interested, (2) the compensation plan was not an exercise of the board’s business judgment, and (3) the approval of the plan amounted to waste. Goldman’s charter contained an exculpation provision pursuant to 8 Del. C. § 102(b)(7).

Rule of Law


Holding and Reasoning (Glasscock, J.)

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