This post comes to us from Bradley R. Aronstam and David E. Ross, partners in the Business Law Group of Connolly Bove Lodge & Hutz LLP. This post is based on an article that originally appeared in Vol. 12, No. 1 of the Delaware Law Review; that article can be found here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.
Delaware’s renowned corporation law rests upon a director-centric premise, reflected in Section 141 of the Delaware General Corporation Law (“DGCL”), that the business and affairs of corporations are to be managed by boards of directors. In carrying out this mandate, directors owe fiduciary duties requiring that they act in an informed manner (i.e., the duty of care) and only in the best interests of the corporation and all of its shareholders (i.e., the duty of loyalty). Consistent with the legislative judgment placing directors at the helm of the corporate enterprise, and mindful of the necessary risk-taking inherent in that role, the Delaware courts afford unconflicted, informed, and properly motivated directors wide latitude in carrying out their duties. That deference is reflected in the venerable business judgment rule, under which courts will not second-guess the decisions of independent and disinterested directors acting in good faith and following an appropriate decision-making process.