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Unsettledness in Delaware Corporate Law: Business Judgment Rule, Corporate Purpose

Unsettledness in Delaware Corporate Law: Business Judgment Rule, Corporate Purpose, Lyman Johnson, Washington and Lee University – School of Law; University of St. Thomas, St. Paul/Minneapolis, MN – School of Law, June 11, 2013. 38 Delaware Journal of Corporate Law, 2013, (Forthcoming)

“This article revisits two fundamental issues in Delaware corporate law. One — the central role of the business judgment rule in fiduciary litigation — involves a great deal of seemingly settled law, while the other — is there a mandated corporate purpose — has very little law. Using the emergent question of whether the business judgment rule should be used in analyzing officer and controlling shareholder fiduciary duties, the latter issue having recently been addressed by Chancellor Strine in the widely-heralded MFW decision, this article proposes a fundamental rethinking of the rule’s analytical preeminence. For a variety of reasons, it is suggested that fiduciary duties should be made more prominent and the business judgment rule should be dramatically de-emphasized. The policy rationales for the rule are sound, but they have no relevance for shareholders, and introduce needless doctrinal and analytical complexity. For directors, the policy rationales do not apply in the loyalty setting, so the duty of loyalty should not analytically be considered a “component” of the rule; and in the care setting, the rationales can be achieved simply by recalling that there is no substance to judicial review in that context.”

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