A more thorough explanation:

Greenmail is a strategy used by corporate boards of directors to prevent a takeover of a corporation or the increasing influence of an adverse shareholder. It became popular in the 1980s when takeovers of public corporations were on the rise.

In the traditional use of greenmail, a hostile shareholder is bought out by the corporation for more than the stock's market value, preventing a takeover. However, this practice received criticism for preventing directors from being replaced and making the corporation cover unnecessary expenses.

Some courts allowed directors to use greenmail under the lenient coverage of the business judgment rule, assuming that the directors were independent. Other courts limited their use in different ways, such as requiring the advice of a financial advisor, requiring shareholder approval, or preventing extreme greenmail prices.

For example, New York only allows greenmail payments for less than 10% of outstanding stocks unless the shareholders approve. Some courts required the directors to show how the greenmail actually benefited the corporation. The federal government and some state governments also enacted heavy taxes on some greenmail, but many directors found loopholes around these taxes.

Today, directors use greenmail in different circumstances. For example, they may use it to buy stocks from adverse shareholders who are attempting to control the replacement of leaving directors. These new methods have avoided many prior restrictions on greenmail and continue to evolve, but all greenmail tactics see heightened scrutiny by courts where the directors seem to be taking extreme measures or are conflicted.

Overall, greenmail is a controversial tactic used by corporate boards of directors to prevent takeovers or adverse shareholder influence. Its use is heavily scrutinized by courts and subject to various restrictions and regulations.