Philadelphia partner Doug Raymond published his latest column, “Don’t rely on others to do your work” in Directors & Boards, written with the assistance of Philadelphia associate Kyla Rivera.
In the article, Doug discusses how sometimes the litigation discovery process turns up issues that reflect more fundamental problems. One such recent case is In re Rural Metro Stockholders Litigation, decided recently in Delaware.
In Rural the usual suits were brought challenging a 2011 sale of Rural/Metro Corporation to a private equity fund, and raising both disclosure and breaches of fiduciary duty claims against the company’s board of directors, as well as claims against the company’s financial advisors. The directors and one of the financial advisors settled out of court.
The case proceeded to trial against the remaining financial advisor. The opinion makes for an interesting read as the judge reviews some pretty surprising behavior by both bankers and directors, with the court ultimately finding that the directors had breached their duties to the corporation and its stock- holders. While there is no single blue- print or formula for board processes, in Rural the court provides several object lessons for other directors and boards.
Doug concludes, although legal and financial advisors play key roles in significant corporate transactions and board members can rely on their reasonable advice, the Rural opinion is a reminder that directors play the most important role in the process. Boards cannot turn significant transactions, particularly sales of control, over to others and expect to be protected if things go badly. The directors must actively manage these processes, and they must actively oversee the work of their advisors.