9 - Commentary on Smith v. Van Gorkom

Summary

In Smith v. Van Gorkom, the Delaware Supreme Court held that corporate directors owe a duty of care to act on “an informed basis, in good faith, and the honest belief that the action taken was in the best interest of the company.” This holding shocked boardrooms everywhere by subjecting directors to the threat of personal liability for gross negligence in decision-making. While legislatures moved swiftly to allow corporations to adopt exculpation clauses relieving directors from these heightened standards, Van Gorkom remains a high-water mark in holding directors liable for their actions. Lua Yuille’s feminist judgment expands Van Gorkom’s reach, focusing on the homogeneity of the all-white male board and resulting in lack of diverse qualities and perspectives. She takes the revolutionary step of only affording the business judgment rule presumption to the decisions of an appropriately diverse board. In her rewritten opinion, the majority’s cramped duty of care is expanded to encompass all stakeholders, not merely shareholders. Virginia Harper Ho contextualizes the feminist judgment and explores possibility of a faith-centered feminism and its relationship to stakeholder-centric governance.