Reforming the Entire Fairness Standard in Corporate Law

Depending on the circumstances, Delaware courts review the decisions of corporate
fiduciaries (such as directors and controlling shareholders) under any of various so-
called standards of review. When the fiduciaries are conflicted, courts apply the most
exacting standard of review, the “entire fairness” standard. Under that standard, the
conflicted fiduciaries are required to prove that the challenged decision involved both
a fair process and a fair price. Because courts are naturally better at evaluating
process than price, however, there has been a counterproductive tendency in the
caselaw to emphasize procedural fairness even though shareholders naturally care
only about price, a fair process being valuable to them only to the extent that it
produces a fair price. This paper argues that the entire fairness standard should be
reformed to concentrate solely on price, with process issues being relevant only to
the extent that they tend to show that the price was fair. If the conflicted fiduciaries
can show that the price fell within the range of fairness, then, regardless of any
infirmities of process, that should be sufficient to satisfy their burden under the entire
fairness standard.

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