Corporate partner Doug Raymond and associate Ellie Houser co-authored an article for Directors & Boards outlining steps boards can take to avoid getting caught in an extended legal review of conflicted transactions.
The authors explain how the business judgment rule protects most board decisions from being successfully challenged. However, if a board approves an action in which some of the directors or a significant shareholder have an interest, a court will take a more careful look through a process called “entire fairness review.”
The authors then share steps to ensure a fair deal process so that any challenge will be unlikely to stand up in court. In conclusion, they state that this will allow boards to confidently engage in various transactions that will benefit both the corporation and the conflicted party.
Overall, the authors note that enhanced judicial review of conflicted transactions should not deter corporations from partaking in them altogether.