What 1985 Delaware Supreme Court case defined directors' duty of care?

The 1985 Delaware Supreme Court case that defined directors’ duty of care was Smith v. Van Gorkom. It is also known as the Trans Union case, after the company whose board approved a leveraged buyout without adequately informing itself about the proposed price.

The court held that the directors were grossly negligent because they approved the transaction after only a brief discussion, without a thorough valuation, outside expert advice, or full consideration of relevant management concerns. That failure meant the business judgment rule did not protect their decision.

The ruling became a landmark in Delaware corporate law because it emphasized that directors must make informed decisions, not merely act honestly. It also prompted widespread use of charter provisions authorized by Delaware General Corporation Law §102(b)(7), which can limit monetary liability for duty-of-care breaches, subject to important exceptions.

A common mix-up is confusing this case with Revlon, which concerns directors’ duties when a company enters a sale process, or Unocal, which concerns defensive takeover measures. Smith v. Van Gorkom is specifically associated with informed board decision-making and the duty of care.