Business Judgment Rule Takeovers

Accordingly if the board of directors acted in a disinterested independent and informed manner then the court won t second guess a director s decision and will not impose liability for bad decisions.

Business judgment rule takeovers. The business judgment rule bjr is a term common to the american world of corporations1. The rule exists in some form in most common law countries including the u. Jensen harvard business school mjensen hbs edu thus far we have seen that the corporate takeover phenomenon of the 1980s was one with roots deep in the history of u s.

It is rooted in the principle that the directors of a corporation. Are clothed with presumption which the law accords to them of being in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge. A wave of corporate takeovers has engulfed the united states with a new intensity in the 1980s 1 in 1985 alone 3 165 mergers occurred in volving 139 1 billion dollars in assets.

European takeover law towards a european modified business judgment rule for takeover law volume 1 issue 2 christian kirchner richard w. Takeovers and the business judgment rule michael c. Business judgment rule is the common law principle which has become the starting point in judging directorial conduct defines the set of circumstances in which courts will not second guess the decisions by the board of directors.

The rule is the basis for determining whether a company s director has violated his or her duty of care. The business judgment rule is a case law derived doctrine in corporations law that courts defer to the business judgment of corporate executives. This strict neutrality rule is mitigated in the proposed european takeover directive and in the german voluntary takeover code both of which exempt a few defensive measures such as looking for a white knight from the strict ban on defensive measures deployed by the board of a target corporation without prior shareholder approval.

2 in unocal the court held that a board of directors may only try to prevent a take over where it can be shown that there was a threat to corporate policy and the defensive measure adopted was proportional and reasonable given the nature of the threat. Managerial capitalism and that the scientific evidence on takeovers shows clearly that they have generated enormous efficiency gains by forcing the. A benchmark for evaluating defensive tactics in the storm of hostile takeovers.

Until the unocal decision in 1985 the delaware courts had applied the business judgment rule when appropriate to takeover defenses mergers and sales.