Lund on Aronson

Rethinking Aronson, by Andrew Lund, Pace University School of Law, was recently posted on SSRN.  Here is the abstract:

Shareholders who wish to sue derivatively for breach of directors' fiduciary duties face significant obstacles. Chief among these is the requirement that they demand that the corporation's board pursue the action, unless such demand would be futile. The general test in Delaware for demand futility was set forth almost twenty-five years ago in Aronson v. Lewis. The second prong of that test asks whether the board decision underlying the complaint was the subject of a "valid business judgment." When Aronson was decided, this question served as a satisfactory proxy for the principle motivating the demand futility exception - the need to restrain board authority where the board is expected to be unable to make an impartial decision. If the original decision was not the product of a valid business judgment, directors would likely face personal liability from the derivative suit.