American and Australian Corporate Law

Paper Summary:

This paper explains that, in most areas of law, standards of conduct and standards of review tend to be confused with each other: A standard of conduct enunciates the way in which an actor should play a role, act in his position or even conduct his functions; whereas a standard of review states the test that a court should apply when it reviews an actor's conduct so as to determine whether to impose liability, grant injunctive relief or determine the validity of his actions. The author points out that historically, the two major areas of American corporate law that involved standards of conduct and review have been the duty of care and the duty of loyalty. The paper relates that a typical corporation statute in American or Australia defining a corporate director's duty of care provides that a director's duties must be performed with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.

Table of Contents
Standard of Conduct and Standard of Review in Corporate Law
The Duty of Care in American and Australian Corporations

From the Paper:

"In the landmark case of Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), the the Delaware Supreme Court decided that directors who approved a merger transaction were simply not entitled to the presumptions of the business judgment rule where they spent a very negligible time considering the transaction, had no meaningful financial advice or analysis in doing so, completely allowed the negotiation process to be controlled by one of the company's executives, and did not even have the merger agreement before them when they approved it. Under these extenuating circumstances, the Supreme Court concluded that the directors breached their duty of care and could be held personally liable for the breach."

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