Oh, Those Darn Fiduciary Duties

February 15th, 2008

It must be really tough to be Jerry Yang these days. First his no-sacred-cows 100 days campaign fizzled, now his Board is (if one believes the New York Post) seriously considering Microsoft’s tender offer.

Yang is a director as well, of course. That means that despite the obvious pride of ownership he has in the company, and his clear hope to turn things around rather than see the business picked up by anyone else, he needs to consider what is best for the shareholders.

But what is best? There is no way to answer this question, which is why directors and officers rely on the “business judgment rule” to shield them from Monday-morning quarterbacks everywhere. In short, so long as the Board acts conscientiously, considers all information that may be relevant to a decision and reaches a decision based on its analysis of all the facts at its disposal, the law provides significant protection- even if the Board’s decision works out badly.

In practice, emotions are hard to separate from facts. Yang and his fellow Board members need to put aside their personal feelings and decide whether the sale to Microsoft, sale to a third party, or going the course alone will bring the best outcome for shareholders. This is no mean feat, especially when you started the company and it has been part of your identity for a dozen years.

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