The 1985 Delaware Supreme Court case Smith v. Van Gorkom reshaped corporate law by redefining how courts view directors’ duty of care. The issue was a rushed decision by TransUnion’s board, led by CEO Jerome Van Gorkom, who proposed selling the company to Jay Pritzker for $55 per share. Though the offer appeared favorable on the surface, the process behind it was flawed.
Van Gorkom presented the merger to the board with little supporting financial data, no fairness opinion from an advisor, and only a few hours of discussion before approval. Shareholders later sued, claiming the directors failed to adequately inform themselves before approving such a significant deal.
The Delaware Supreme Court agreed, ruling in favor of the shareholders. The court held that the board breached its fiduciary duty of care by acting on inadequate information and with rushed deliberation. Importantly, it clarified that the business judgment rule does not shield directors who act with gross negligence—even when their intentions are good.
This landmark case remains a cornerstone in fiduciary litigation. It teaches that good intentions are not enough, accountability applies at all levels, and the process of making a decision matters just as much as the outcome. At Lord & Lindley, we help businesses, innovators, and fiduciaries make fully informed and deliberate choices. To learn more or schedule a consultation, call us at (704) 457-1010 or visit www.lordlindley.com.