At the heart of corporate governance are fundamental doctrines that limit court scrutiny of fiduciary and stockholder decisions: the business judgment rule limits scrutiny of informed director decisions and, as with Corwin cleansing, informed voting by “disinterested” shareholders is accorded substantial deference. Only when, for example, the motivations of a director or controlling shareholder are sufficiently suspect would either the “entire fairness” or “enhanced scrutiny” standards of review apply. How to assess such motivations, however, is underdeveloped in the case law.

This Article addresses this task in three areas, relying partly on a methodology for assessing a person’s overall economic motivation flowing from the person’s financial stakes in or directly relating to the corporation. The methodology, from the analytical framework for “decoupling” (e.g., “empty voting”) introduced in 2006 deconstructs the person’s “overall economic interest” in a company’s shares (“host shares”) from such stakes by considering the net effect of the person’s: (a) host shares; (b) “coupled assets;” and (c) “related non-host assets.” A shareholder such as one the framework refers to as an “empty voter with a negative overall economic interest” in host has incentives that are opposite to an “empty voter with a positive overall economic interest” in host shares, and both have incentives different from an “empty voter with a zero overall economic interest” in host shares.

Re-Calibration of Standards of Court Deference to Fiduciary Decisions

First, the Article offers a re-calibration of standards of judicial review of fiduciary decisions when a fiduciary has financial stakes on both sides of the challenged transaction. Dubious outcomes flow from the traditional approach to choosing from the triad of the business judgment rule, enhanced scrutiny, and entire fairness.

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