Question

1. Assume that the directors were highly sophisticated business executives. Should they have to consult others about issues where they already have sufficient knowledge (such as a company’s valuation)?
2. Note that, in light of Van Gorkom, many states (including Delaware) passed statutes that extended the scope of the business judgment defense. Should the business judgment rule protect directors even when they failed to verify the statements of internal management concerning a corporate transaction that is being touted to officers as advantageous to the corporation?

Van Gorkom was an officer, director, and shareholder of Trans Union, a publically traded corporation. He sought to sell his shares to an individual investor for $55 per share. Because his ownership was substantial, the transaction required the board’s approval, and though most of the other officers, including the CFO, opposed the sale on the basis that the price was too low given the value of the company, the board approved the transaction. A group of shareholders brought a lawsuit against the directors of Trans Union based on a breach of the duty of care that resulted in the stock being sold at a value well under its actual worth. The directors sought protection under the business judgment rule, claiming they relied on Van Gorkom’s representations and the NYSE stock price (previously never sold for higher than $39 per share).



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  • CreatedNovember 06, 2014
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