Expert Advice and Director Liability

The CEO proposes a transformative merger transaction, or a massive new technology investment, or the spin-off of the company's slower-growth, but historically core, business. Or, as was the case in a recent Delaware Chancery Court decision, management proposes to implement a poison pill with a...

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Bibliographic Details
Published in:Directors and Boards 2010-04, Vol.34 (3), p.52
Main Authors: Regner, William D, Rosen, Jeffrey J
Format: Article
Language:English
Subjects:
Boards of directors
Corporate liability
Court decisions
Experts
Ownership changes
State court decisions
State laws
Online Access:Get full text
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Summary:The CEO proposes a transformative merger transaction, or a massive new technology investment, or the spin-off of the company's slower-growth, but historically core, business. Or, as was the case in a recent Delaware Chancery Court decision, management proposes to implement a poison pill with a 4.99% trigger to protect against ownership changes that threaten the company's net operating loss carry-forwards. By statute in Delaware (Section141(e)), as well as in most other states, directors are fully protected in relying on expert advice. It's worthwhile to unpack the elements of the statute, since, according to the Delaware Supreme Court, a plaintiff arguing that its safe harbor is inapplicable must show either that one of the elements has not been satisfied, or that omitted information the board should have considered was so obvious and reasonably available that it was gross negligent not to consider it, or that the board's decision was so unconscionable as to constitute waste or fraud.
ISSN:0364-9156