Gordon: With reference to your dual standard argument, wouldn;t it be more to correct to say that we distinguish between standards of conduct and standards of liability? After all, a standard of review generally is a standard of liability. You review their conduct abd then decide if there is liability.

Mel Eisenberg used the conduct/liability dichotomy. See, e.g., http://www.clrc.ca.gov/pub/BKST/BKST-EisenbergBJR.pdf.

Anyway, an otherwise interesting post to which I shall be responding shortly.

Ugh. My bad. I was a little distracted when I was writing this. Anyway, I changed the post. Thanks, Steve.

Even absent the business judgment rule, it seems unlikely that a Google alliance would be a breach. The directors are to act in the interest of the corporation and, even if a Yahoo! deal would be more profitable, it's hard to see how linking with Google is a bad idea.

If the breach is "blatant" why does he merely "believe" it to be so?

Oh, right, he's experienced at hedging!

I read your post to say that directors may not appreciate the impact of the business judgment rule on the duty of care. If this is correct, I don’t follow your statement that “fiduciary law may be working pretty well.” As your post indicates, one of the reasons for the BJR is so that directors are bold. But if directors are misconceiving the law, then they may not be acting as bold as they otherwise would. And this is bad.

Bill, If boldness were the only issue at stake, courts could just eliminate the duty of care entirely. They have decided instead to eliminate it effectively, thus encouraging boldness, but creating some incentive for diligence.

Why do you perceive a tension between diligence and boldness? Don't we want a business judgment rule that (a) gives directors confidence to select the strategy with the highest expected outcome as a weighted average of potential outcomes even when the some of the potential outcomes may involve a loss of value (i.e., "boldness"); while at the same time (b) giving directors an incentive to gather information relevant to their decision and think about it carefully (i.e., "diligence")? I think that is not merely what we want but what we have.

Hi Rob,

I do not disagree with your description of what we want and what we have, but I still see tension between diligence and boldness. If the duty of care is an admonition to directors to gather information and think carefully before they act, doesn't it necessarily inhibit boldness? In other words, wouldn't boards of directors sometimes delay or avoid action because they have not had sufficient opportunity to gather information and make a careful decision?

Perhaps you would argue that the duty of care doesn't inhibit boldness; it inhibits rashness. But boards always operate in an environment of incomplete information and bounded rationality, which means that they always are deciding to act in the face of some uncertainty. In my view, the duty of care and business judgment rule operate together, instucting boards to strike a reasonable balance between diligence (duty of care) and boldness (BJR).

Acting in the face of uncertainty is a necessary and wonderful thing. But some uncertainties can be cheaply eliminated; other uncertainties cannot. (And of course directors' meta-decisions about how to go about gathering information and resolving uncertainties before making a decision are themselves subject to BJR protection.) But if directors are asked to decide whether to invest corporate resources in research toward a potential new product, there is a difference between (a) acting with uncertainty caused by the fact that no one can know whether the research will succeed; and (b) acting with uncertainty because you haven't bothered to read management's presentation. The BJR is designed to protect (a) and punish (b).

Gordon, while I agree with your Fiduciary Duty 101 synopsis, I think Icahn has taken the Fiduciary Duty 201 class. I think he gleaned enough from that class, where we introduce (a) Blasius and (b) Unocal, to be dangerous.

Mind you, I know basically nothing about this Icahn drama other than what I have once or twice seen in the papers, so you clearly are in a position to tell me that I am way off the football field. But my sense is that there is indeed a potential fiduciary duty problem (DOC ala Blasius or Unocal) if you believe, as a reasonable person might, that (a) the strategic alliance decision was deliberately papered on the eve of a proxy contest to impede the shareholder vote or (b) the strategic alliance decision was even ARGUABLY a response to the Icahn threat or the threat of Icahn soliciting and/or revisiting other suitors (if they were actually threats). No?

I say this in part based on the fact that the one little blurb I read quoted Icahn as saying:
"I believe there are and will be major opportunities to enhance Time Warner's value in future combinations. However these transactions might not be achievable if Time Warner enters into long-term arrangements that preclude future flexibility such as an agreement regarding search functionality."

Icahn certainly used some bell-ringing words in that statement to the press (notwithstanding the fact that they are Revlon bell-ringing words)!

I am not suggesting that Icahn is going to get an A in Fiduciary Duty 201 class, because I am not sure that the facts will support his apparent invocation of Blasius or Unocal (or maybe even Revlon?) scrutiny. And I am certainly going to take off credit for organization and clarity with his reckless use of the "business judgment" language. But, depending on what the facts look like, he could end up in the B- to maybe even B+ range, given the timing of the strategic alliance and the alleged preclusive impact of the alliance.

Elizabeth, There is no way this is a Revlon case. Or Unocal. We are talking about a strategic alliance, not an acquisition. Google is buying 5% of AOL, that's it.

And I see no indication that this transaction will make a proxy contest against Time-Warner's board less likely to be successful. Certainly nothing close to Blasius.