Williams Companies Stockholders Litigation

The Williams Companies, Inc. (Williams) (defendant) was a publicly traded corporation that owned and operated natural gas infrastructure assets like pipelines and processing facilities. Williams was overseen by a board of directors (defendants). In response to the COVID-19 pandemic and an oil-price war, Williams stock prices dropped substantially. As a result, Williams’s board of directors considered implementing a poison pill, or shareholder-rights plan, to protect the company from potential stockholder activism. Two of Williams’s 12 directors had encountered investors who engaged in stockholder activism by acquiring Williams stock, becoming board members, and then attempting to forcibly change the board’s membership. The board met twice to consider the terms of the poison pill and was advised by outside legal and financial advisors. The board did not discuss Williams’s previous encounters with stockholder activism. After deliberating, the board implemented a poison pill with several features, including a 5 percent beneficial-ownership trigger threshold, a limited exception for passive investors, and an acting-in-concert provision. These terms were more intensive and extreme than similar plans currently in effect with other companies. The board further failed to redeem the plan, leaving it in place. In response to the plan, a class of Williams shareholders filed suit in Delaware Chancery Court, claiming that the board members breached their fiduciary duties by adopting and maintaining the shareholder-rights plan. During trial, the board identified three reasons for adopting the plan: (1) a generalized concern about potential stockholder activism; (2) a concern that activists could pursue short-term agendas without caring about the long-term company health; and (3) a desire to detect attempts by activists to rapidly accumulate substantial amounts of stock, known as lightning-strike attacks.