Washington and Lee law professor Lyman Johnson has contributed a guest post to the CLS Blue Sky Blog, a blog focused on corporations and capital markets, hosted by the Columbia Law School. In his post, titled “The Unnecessary Business Judgment Rule,” Prof. Johnson takes issue with a recent decision issue by Delaware Chancery Court Chancellor Leo Strine regarding the business judgement rule standard of review. From his post:
A few weeks ago Chancellor Leo Strine, in a widely-heralded ruling, held that the business judgment rule standard of review applied to controlling shareholders in a self-dealing transaction if two conditions were met. From the outset, the transaction must be subject to the approval of both (i) an independent special committee complying with its fiduciary duties, and (ii) a majority of the minority shareholders in a fully-informed and non-coerced vote.
I argue that Chancellor Strine should not have used a business judgment rule review standard. Regrettably, he chose that doctrinal standard over the strict entire fairness standard for a very simple reason: he likely believed he had no doctrinal alternative. After all, isn’t the BJR the alternative to entire fairness, assuming that neither the special Unocal or Blasius standards apply? It may seem so, but my article argues that such a view is deeply flawed.