University of Michigan Law School Scholarship Repository
Abstract
Corporate law statutes determine the nature of the relationship between shareholders, the principal owners of the corporation, and the board of directors, those w ho run and operate the corporation. Under the Delaware General Corporation Law ( DGCL ), many of the powers are delegated to the board of directors. More specifically, under section 141, the business and affairs of every corporation . . . [are] managed by or under the direction of a board of directors . . . . The Delaware courts have interpreted this provision by deferring to decisions by directors and their designated management under the business judgment rule, which presumes that in making a business decision, the directors acted on an informed basis with a good faith, an honest belief that the action taken was in the best interests of the company. As many have noted, [t] he effect of this presumption when applied by a court is that the court will not substitute its judgment for that of the board, unless it is shown by a preponderance of the evidence that the directors\u27 decision involved a breach of fiduciary duty
