Recent developments in Delaware case law

The Disney, Toys 'R' Us and LNR cases confirm that the Delaware Chancery Court will provide broad but not unlimited - latitude to corporate boards in the exercise of their business judgment, provided that they act in good faith and on at least a minimally informed basis. The Chancery Court reaffirmed that a board's fiduciary duties are immutable and that the standards of corporate governance do not shift with the winds of public opinion and perception. In an era when executive compensation and directorial misfeasance or non-feasance animate sweeping federal legislation and blockbuster settlements of federal securities litigations, the Delaware Court refused to second- guess the Disney board's decision to hire, lavishly compensate and quickly terminate Michael Ovitz, despite noting significant failings in both the composition of Disney's board and its performance. Even in the context of mergers and corporate control changes, the Chancery Court made clear through Toys 'R' Us and LNR that the board or a special committee's decisions will be given the traditional deference afforded by the business judgment rule so long as their actions demonstrate adherence to the substance of the business judgment rule and not just a perfunctory nod to its formalities alone. Thus, Delaware law continues to remain constant in its support for what it calls ' the risk taking, innovative, wealth-creating engine that is the Delaware corporation'.