H. Ross Perot became the single largest shareholder and a director of General Motors as a result of GM’s acquisition of Perot’s highly successful company Electronic Data Systems (EDS). A rift grew between Perot and GM’s other directors, and after appointing a subcommittee of directors to study possible alternatives, GM’s directors offered to purchase back Perot’s stock at a significant premium over market value. In exchange for the payment, Perot agreed to leave his director’s seat, not compete with any GM subsidiary (particularly EDS), and cease any criticism of GM’s directors. A group of GM shareholders sued the directors under the theory that the directors had breached their fiduciary duty by wasting corporate assets in buying Perot’s silence. The directors asserted the business judgment rule as a defense.

CASE QUESTIONS

1. Who prevails and why?

2. What fiduciary duty is at issue?