ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, October 14, 2008

Business Associations Limerick of the Week: Bayer v. Beran

WagnersmaidensAlas, I found no public domain images of Jean Tennyson, wife of Camille Dreyfus, who was president of the Celanese Corporation at the time it decided to promote its product (which is not, I repeat, not rayon) by sponsoring a classical music program on radio intended for the discriminating ears of those who might be inclined to care about the difference between rayon and celanese. The image to the left might help us imagine Ms. Tennyson in her prime. In Bayer v. Beran, plaintiffs challenged the corporation's decision to promote its products through a radio program featuring the boss's wife. Even if the decision to spend $1 million on a radio show was justified, why not feature popular music?

The case illustrates the standard of review that applies to claims that board members violated their duty of loyalty due to a conflict of interest in the challenged transaction. Interestingly, in this case, the Board had no conflict of interest, since only one Board member stood to gain financially from a decision to hire Jean Tennyson. Still, the court treated the situation as one in which the entire Board was interested. In short, this was a rare case in which a Delaware court recognized structural bias in such a transaction. It did so in this case because the company really was Mr. Dreyfus's creation, and the Board members owed their positions to him.

The decision to have a classical music program was accorded the protections of the business judgment rule. The decision to hire Ms. Tennyson was subjected to a heightened standard, total fairness. The burden was placed on the Board to demonstrate that the decision to hire Ms. Tennyson was in the best interests of the corporation and not simply designed to further her musical career. Because Ms. Tennyson was found to be a "competent" singer, and her pay was actually somewhat lower than that of the other singers, the court found the transaction fair. Those interested in listening and judging for themselves can pay for the opportunity to hear Ms. Tennyson singing Verdi, in a duet featuring Mario Lanza, here.

Bayer v. Beran

The Bayer v. Beran court teaches
That a firm does not commit breaches
When it employs
A director's wife's voice . . .
Unless she emits only screeches.

[Jeremy Telman]

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