Forty-one years after it judged a two-hour board meeting, Delaware is still measuring how fast is too fast.

On January 29, 1985, the Delaware Supreme Court held in Smith v. Van Gorkom that directors who sold Trans Union after a meeting of about two hours, on a twenty-minute oral presentation, with no documents before them, were at a minimum grossly negligent and had forfeited the business judgment rule.

That is the holding. The rest is how the court got there.

Jerome Van Gorkom, Trans Union's chief executive, called the board together on September 20, 1980, with a buyer in Jay Pritzker and a price of $55 a share; only one other director knew why. They heard a "20-minute oral presentation" on an agreement he "admittedly had never read." The meeting "lasted about two hours," and Van Gorkom signed that night at a party for the opening of the Chicago Lyric Opera. Justice Horsey, for the majority, found gross negligence "in approving the 'sale' of the Company upon two hours' consideration, without prior notice, and without the exigency of a crisis or emergency."

"The majority opinion reads like an advocate's closing address to a hostile jury," Justice McNeilly began his dissent. "And I say that not lightly." The outside directors were, with one exception, "chief executive officers of Chicago based corporations." "Directors of this caliber are not ordinarily taken in by a 'fast shuffle,'" he wrote.

"An overview of the entire record, rather than the limited view of bits and pieces which the majority has exploded like popcorn, convinces me that the directors made an informed business judgment which was buttressed by their test of the market." Justice McNeilly, dissenting.

The gap is narrower than the heat suggests. McNeilly had "no quarrel with the majority's analysis of the business judgment rule." The rule "is a presumption that in making a business decision, the directors of a corporation acted on an informed basis," judged by whether they learned "all material information reasonably available to them." The majority said two hours with nothing on the table and no emergency is too short. Boards remember the two hours and forget the clause about a crisis. The legislature answered "in the wake of Smith v. Van Gorkom," as the Supreme Court later put it in Rutledge, with Section 102(b)(7), which lets a charter eliminate money damages for breach of the duty of care. The statute took the damages off the table and left the duty standing.

Boards that were not in a deal

Eleven years later Chancellor Allen wrote the oversight rule in Caremark while approving a settlement. The claim is "possibly the most difficult theory in corporation law," yet a director must "attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists."

The duty bit in 2019, in Marchand v. Barnhill, after Blue Bell Creameries shipped ice cream carrying listeria and three people died. Chief Justice Strine revived a complaint alleging the board "had no committee overseeing food safety" and no protocol for hearing about it. Food safety was "essential and mission critical," and Caremark has a floor, a good faith effort to put in place "a reasonable board-level system of monitoring and reporting."

In 2021 Vice Chancellor Zurn let a Caremark claim proceed against Boeing's directors after the 737 MAX crashes killed 189 people on Lion Air Flight 610 and 157 on Ethiopian Airlines Flight 302. Management "did not bring the Lion Air Crash to the Board's attention for over a week," and "[t]he Board had no committee charged with direct responsibility to monitor airplane safety." Speed was never Boeing's problem. Its board first took up the crash at a regular meeting seven weeks later, and nothing in its structure made anyone ask sooner.

Deals, contracts, and the legislature

Deal votes get a different test. In Corwin the court held that when a merger not subject to entire fairness "has been approved by a fully informed, uncoerced majority of the disinterested stockholders," the business judgment rule governs a damages suit. If "troubling facts regarding director behavior were not disclosed," the rule "is not invoked."

After Corwin the argument moved to the contract. Moelis & Company's stockholder agreement required the board to obtain its founder's "prior written consent before taking eighteen different categories of action," and Vice Chancellor Laster held that "the Board is not really a board." Senate Bill 313, signed July 17, 2024, answered with Section 122(18), letting a corporation "make contracts with 1 or more current or prospective stockholders" that restrict its own actions. This January the Supreme Court reversed. Terms at odds with Section 141(a) are voidable, so laches applies, and a fund suing in 2023 over a 2014 agreement had waited too long. The court said it had "not considered the implications of Senate Bill 313" in getting there.

Senate Bill 21, signed March 25, 2025, rewrote Section 144 into safe harbors. A controlling stockholder transaction "may not be the subject of equitable relief, or give rise to an award of damages" if disinterested directors on a committee of "2 or more" approve it, or disinterested stockholders do by "an informed, uncoerced, affirmative vote." Open the safe harbor and 1985 is inside it. The approving directors must act "in good faith and without gross negligence."

Within a year a Clearway Energy stockholder, challenging a wind-project purchase from the controller "priced at $107 million" and never put to a minority vote, asked whether any of this was constitutional. Justice Traynor answered both certified questions no. The statute "may affect the standard of review, but it does not affect a substantive right without due process," and SB 21 "does not extinguish his right of action."

Illinois

Illinois has no Van Gorkom. In 1968, in Shlensky v. Wrigley, the appellate court upheld the dismissal of a suit against the Chicago Cubs' directors for refusing to install lights at Wrigley Field, because the complaint "showed no fraud, illegality or conflict of interest." In 1993 the same court added in Stamp v. Touche Ross: "The exercise of due care is a prerequisite to the applicability of the business judgment rule." And when directors sit on both sides, the Illinois Supreme Court has held since Shlensky v. South Parkway Building Corp. in 1960 that "the burden is upon those who would maintain them to show their entire fairness." That is Van Gorkom in an Illinois accent.

Trans Union's directors had two hours and lost. Boeing's had seven weeks before they met on it, Blue Bell's had years, and the claims against both survived. Not one of the three boards had built anything that would force the question at the right time, or kept a record to show it had. Delaware now rewards that structure with a safe harbor. Illinois offers a shift in the burden of proof and leaves the rule where it found it.

Columns are the views of their authors. They are not legal advice and not the position of the firm.