Corporate Governance

Delaware Courts and the Influence of Federal Preemption (part 4)

By J. Robert Brown

Are there other examples of a reduced managerial bias?  Lyondell is another possibility.  In that case, the Chancery Court held that the waiver of liability provision did not apply to the alleged conduct (approval of a merger involving a 45% premium).  The decision caused a stir, with plenty of criticism.  Essentially, the case stood for the proposition that directors without conflicts of interest might be liable for failing to take sufficient steps to protect the interests of shareholders.   

Some view the case as a tempest in a teapot.  Even the Vice Chancellor who wrote the opinion went to great lengths to minimize the significance of the decision (largely blaming the defendants for the result).  Nonetheless, the case did breath life into the idea that directors could be liable for falling below a modest standard of behavior designed to protect shareholders.  The explanation may be judicial pique but it also may be concern over federal preemption.

Full post as published by The Race to the Bottom on December 16, 2008 (boomark / email).