The Unimportance of Being Earnest: Paramount Rewrites the Rules for Enhanced Scrutiny in Corporate Takeovers

Authors

Paul L. Regan

Abstract

In Paramount Communications v. QVC Network, the Delaware Supreme Court announced that enhanced judicial scrutiny would be applied to both the process and the results of director decision making in every corporate takeover case. In doing so, the court focused on the significance of a changeof- control transaction and downplayed the importance of directors' care and loyalty.

In his Article, Professor Regan examines the balance between managerial authority and responsibility to shareholders struck by the business judgment rule-the foundation of judicial deference to board decision making-and traces the development of enhanced scrutiny in cases involving antitakeover measures that raise the "omnipresent specter" of director self-interest. The author criticizes the extension of enhanced scrutiny to these cases and points out that, although the "omnipresent specter" rationale justifies enhanced scrutiny of antitakeover measures, it fails to explain why every decision to sell a company should raise the suspicion of improper motives. The author concludes that the court has unduly emphasized the value of board accountability to shareholders at the expense of the countervailing value of managerial authority.

Recommended Citation

Paul L. Regan, The Unimportance of Being Earnest: Paramount Rewrites the Rules for Enhanced Scrutiny in Corporate Takeovers, 46 Hastings L.J. 125 (1994).
Available at: https://repository.uclawsf.edu/hastings_law_journal/vol46/iss1/8