Frederick H. Alexander
This brief article questions whether there are situations in which it is inappropriate to review the conduct of corporate directors under the traditional standards of fiduciary duty. The author suggests that the application of a fiduciary duty analysis to questions concerning the propriety of directors’ decisions to enter into deal protection measures is misguided. He explains that the application of such an analysis needlessly infuses uncertainty and confusion into board deliberations.
With particular focus on the Unocal and Revlon doctrines, this article provides an analysis of the applicable fiduciary standards of review under Delaware law. Mr. Alexander then argues that both the heightened standard of review and the “non-review” of the business judgment rule are inappropriate standards under which to review decisions to enter into deal protection measures. The author proposes that the review of these decisions should be removed from the realm of fiduciary duty, and instead, should be subject to a non-fiduciary vote coercion analysis. This change would restore a level of certainty and confidence to the board room that would allow directors to act in the best interest of the shareholders that they serve, without the unnecessary fear of breaching their fiduciary duty. The author’s position is supported by the recent North Carolina decision in First Union, which the article also discusses.