Fiduciary Duties in M&A: What Directors Actually Owe
When a company's board decides to sell, merge, or restructure, the directors don't just get to do whatever they want. They owe fiduciary duties to shareholders — and in M&A, those duties get tested hard.
The baseline duties are familiar: care (make informed decisions) and loyalty (don't put your own interests above the company's). But in the deal context, courts have layered on a more demanding standard.
The Revlon Problem
Under Delaware law, once a board decides to sell the company in a change-of-control transaction, it shifts from "just run the business well" mode into Revlon mode — meaning the board's job becomes maximizing shareholder value in the near term. It can't favor one bidder for strategic reasons, protect management's jobs, or accept a lower offer because it "likes" the acquirer. The duty is to get the best price reasonably available.
The catch? Courts have spent decades arguing about when Revlon actually triggers. Cash deals? Yes. Stock-for-stock mergers where shareholders maintain proportional interest in a larger company? Not necessarily.
Corwin and the Shareholder Vote Escape Hatch
Here's where it gets interesting. In Corwin v. KKR (Del. 2015), the Delaware Supreme Court held that if fully informed, disinterested shareholders approve a transaction, courts will apply the deferential business judgment rule — not enhanced scrutiny. This dramatically reduced litigation risk for deals that get a clean shareholder vote, and boards have leaned into it ever since.
The Conflict Problem
The real danger zone is when directors have conflicts — management wants to keep their jobs post-merger, a controlling shareholder is on both sides of the deal, or a financial advisor has its own stake in the outcome. Courts scrutinize these situations much more aggressively, and that's where most modern M&A litigation lives.
Interesting!