Who’s In Control Here?

Corporate partner Doug Raymond and business litigation partner Todd Schiltz co-authored an article for Directors & Boards on the Delaware Supreme Court’s reminder to boards to act in the interests of all stockholders first, especially in situations involving a controlling stockholder.

Raymond and Schiltz discuss the "business judgment rule" that grants broad discretion to boards, presuming their decisions serve the company's best interests, usually requiring dissenting stockholders to replace directors rather than sue them. However, transactions involving a controlling stockholder demand scrutiny under the "entire fairness" standard, necessitating proof of fair process and price.

The authors note a few recent Delaware cases, including Kahn v. M&F Worldwide Corp. (MFW), that outlined conditions where the business judgment rule applies to controller transactions, emphasizing independent committees and informed minority votes. In addition, the case In re Match Group Inc. Derivative Litigation further clarified these standards, highlighting the importance of board accountability in transactions involving controllers and the need for adherence to rigorous governance practices.