Reliance on Experts from a Corporate Law Perspective. This post comes from Alexandros Rokas, LL.M. ’12, Corporate Governance Concentration.
Alexandros is currently an adjunct lecturer at the University of Athens. He recently published an article based on his LLM paper in the American University Business Law Review (Vol. 2:2, 2013, p. 323). The article is titled “Reliance on Experts from a Corporate Law Perspective”.
In discharging their duty of care, directors of corporations are not expected to independently investigate all parameters affecting a decision they are about to make. In fact, statutory provisions encourage or sometimes require directors to seek the advice of experts such as auditors, lawyers, investment bankers, and tax specialists. In this Article, emphasis is placed on Section 141(e) of the Delaware General Corporation Law, according to which directors are entitled to rely on the advice of such experts as long as they believe that the advice was within the expert’s professional competence, the expert was selected with reasonable care, and reliance is in good faith. Apart from systematizing the elements of this rule, as they were interpreted by a significant number of court decisions, this Article sheds light on the interaction of the reliance defense with basic concepts of Delaware corporate law, mainly the business judgment rule as well as good faith after Caremark. This Article does not examine whether directors will be eventually held liable (which, besides, is rarely the case in Delaware due to the business judgment presumption, exculpatory clauses, and insurance and indemnification provisions), but solely whether the additional defense of Section 141(e) should apply or not.
The article can be found here.
— Anastasia Tolu, Corporate Governance site administrator
August 26, 2013