Benefit Corporation Law and Governance

CHAPTER THREEStandards of Review

HOW JUDGES DECIDE WHETHER DIRECTORS ARE PUTTING SHAREHOLDERS FIRST

In chapter 2, we showed that in the United States, and particularly in Delaware, courts have settled on the rule of shareholder primacy. In this chapter we will discuss the details of how courts enforce that rule. In corporate law, the critical question in enforcing fiduciary duties is the “standard of review,” which is the formula that a court will use when a shareholder brings a lawsuit claiming that directors have violated their obligations. Understanding the enforcement mechanism is critical to understanding how both shareholder primacy and benefit corporation law operate. This chapter discusses how the standard of review operates under conventional ...