Standards of Judicial Review for the Target Board’s Fiduciary Duties in the U.S.- focused on the context of hostile takeovers -

Director/Management accountability and good corporate governance are nowadays especially important concerns in the wake of recent scandals at Enron, WorldCom, Lehman Brothers, and elsewhere, and the consideration of the proper mix of discretion between directors and shareholders in the hostile takeover context has taken center stage because it occurs at the intersection where board authority and shareholder rights meet. Solving the takeover debate requires us to focus on the question of whether the target board or shareholders should have more control to decide whether or not the company should be sold to a bidder. The current takeover laws have assumed that the target board has broad authority to respond to a hostile tender offer by adopting various and strong defensive measures that make a bid more difficult even if the target shareholders want to sell. In addition, because corporate law expresses a profound ambiguity about the role of shareholders in this context, shareholders have had a very difficult time in making corporate decisions in efforts to defend against hostile bids. Takeover jurisprudence is usually approached through the means of fiduciary duties by asking whether the target board acted in good faith, in an informed manner, and in the best interests of the target shareholders. This article focuses on how the standards of judicial reviews for the target board’s fiduciary duties should be improved and/or changed in order to reflect shareholders’ choices and interests by analyzing each standard of review and exploring the relationship between them. Ultimately, from the perspective of shareholders, I try to suggest the active use of the Blasius test where the target board’s action interferes with the shareholder franchise and is made in response to a hostile takeover. At the same time, I view that we should not overlook the usefulness of the “entire fairness” doctrine in enhancing and securing the respect of shareholders’ power as an appropriate constructive manner for the target board’s fiduciary duties in response to hostile takeover attempts.