WILMINGTON, Del. —
Attorneys for Meta and Mark Zuckerberg asked a Delaware judge on Wednesday to dismiss a shareholder lawsuit asserting novel claims about the roles of corporate leaders and arguing that the loyalties of Meta directors should not lie exclusively with the social media giant.
James McRitchie, who runs a website focused on corporate governance and shareholder activism, argues that Meta’s directors have breached their duties to the company by putting profits over broader societal and economic interests, including Meta shareholders’ investments in other companies.
While Delaware law requires corporate directors to act as fiduciaries in the best interests of their stockholders, including maximizing the value of their shares, attorneys for McRitchie argue that Delaware courts should recognize a “portfolio theory” of corporate governance that takes into account external factors.
They argue, for example, that Meta, which owns Facebook, Instagram, Messenger and WhatsApp, has prioritized profits while downplaying the detrimental effects of its products on society and the global economy. That, in turn, can negatively affect the investment portfolios of Meta shareholders who also have invested in other companies, they contend.
“What we’re saying is that (board) decisions should look at the overall portfolio consideration,” attorney Kurt Heyman, who was peppered with questions during a lengthy back-and-forth discussion with Vice Chancellor J. Travis Laster.
Among the ills the lawsuit blames on Meta’s social media platforms are mental health problems among young Instagram users, online human trafficking, “vaccine hesitancy,” incitements to violence and harassment, misleading or false political ads, and “election misinformation.”
“If the decisions that maximize the company’s long-term cash flows also imperil the rule of law or public health, the portfolios of its diversified stockholders are likely to be financially harmed by those decisions,” McRitchie’s complaint states.
Attorneys for Meta say McRitchie’s claims fly in the face of decades of Delaware corporate law and should be dismissed with prejudice. In their motion to dismiss, they note that, under Delaware law, corporate directors have no duty to consider or protect a stockholder’s investments in other companies. While directors of a corporation have the discretion under Delaware’s “business judgment” rule to consider broader constituencies beyond their shareholder base when making decisions, they have no obligation to do so, they add.
“The plaintiff’s claims are antithetical to core foundations of Delaware law,” Meta attorney James Kramer told Laster.
Defense attorneys said in a court filing that McRitchie is suing Meta as a test case “in which he can share his theories on how he thinks corporations should operate.”
“We’re not here to legislate,” Kramer told Laster. “We’re here on a motion to dismiss.”
Laster did not rule immediately but noted that, no matter his decision, the case will likely wind up in Delaware’s Supreme Court.
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