Corporations
Moran v. Household International, Inc., 500 A.2d 1346 (Del. 1985)
Study notes for Moran v. Household International, Inc.: professor notes, cold call prep, exam angles, and memory aids.
A Delaware corporation's board may adopt a shareholder rights plan without shareholder approval, as it falls within their authority under the DGCL.
This case highlights the scope of authority granted to corporate boards under the Delaware General Corporation Law (DGCL) regarding the adoption of shareholder rights plans, commonly known as poison pills. It underscores the idea that the board can proactively defend against hostile takeovers without the immediate threat of a specific offer. Proponents argue that such preemptive measures are aligned with directors' fiduciary duties to protect shareholders' long-term interests, while critics may contend this can entrench management and diminish shareholder autonomy.
Additionally, Moran v. Household is critical in illustrating the balance of powers between corporate governance and shareholder rights. The court articulates that while boards can adopt such measures, any subsequent use of the poison pill against specific offers will be subjected to heightened scrutiny under the Unocal standard, ensuring that the board’s actions remain justifiable and in good faith in the face of an actual takeover bid.
PILL: Proactive Implementations for Long-term Legacy
| Case | Distinction |
|---|---|
| Unocal Corp. v. Mesa Petroleum Co. | Unocal established the standard of enhanced scrutiny that applies when a board acts defensively against a specific takeover, whereas Moran allows for preemptive adoption of defenses. |
| Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. | Revlon requires that when a sale of the company is imminent, the board's duty shifts to maximizing shareholder value, contrasting with Moran's focus on preemptive measures. |
The rule supports proactive governance, enabling boards to protect the company and its shareholders from coercive and hostile takeovers that may not reflect the true value of the company.
Critics argue this can lead to entrenchment of management, potentially allowing boards to resist shareholder interests without appropriate oversight.
This case typically appears in exams as a demonstration of the board's authority to act in preemptive response to takeover threats, emphasizing the need for a balance between protecting shareholder interests and maintaining accountability in corporate governance.