February 09, 2006
Teaching Van Gorkom in the Midst of Enron
Posted by Lisa Fairfax

This week, I have been teaching Van Gorkom and for the first time I found it nearly impossible to gain any real student support for the dissenting position—even among students with some experience in the business world. This has not always been the case. Indeed, in past classes I have been able to generate a lively debate regarding issues of formalism over substance, the efficacy of the business judgment rule, the propriety of courts’ second-guessing the decisions of seemingly accomplished business-men, and whether we should make allowances for decisions made under time pressure. This week, I have been debating primarily with myself.

In fact, students were either puzzled or incredulous at my statements that many corporate practitioners and scholars reacted to Van Gorkom with shock and disbelief. I know that Van Gorkom has its proponents, but the universal support for its pronouncements exhibited by my students seemed interesting to me, to say the least. In fact, based on their responses to my questions, it seemed apparent to me that a good percentage of my class believed that the directors’ conduct in Van Gorkom could be construed as reckless, and hence potentially criminal. My students’ reactions to Van Gorkom appear to represent a tangible example of the manner in which corporate governance scandals and their related trials may be having an impact on what students and future corporate attorneys perceive to be acceptable norms of corporate behavior. However, I am not sure if their reactions reflect a temporary response to the impact of Enron and the present trial, or if their views regarding corporate conduct will impact their perceptions about corporate norms of behavior in a more permanent fashion.

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