Here’s a tip from the sixth edition of our popular publication The Public Company Handbook, which is an easy-to-read guide that provides practical insights regarding legal and other board management issues facing public—or soon-to-be-public—companies.

This tip involves reliance on experts. As Smith v. Van Gorkom and Disney show, a director has traditionally been able to demonstrate good faith and due care by relying on reports prepared by expert advisors to the company, such as bankers and accountants, regardless of the director’s personal qualifications. There are limits, however, to the safe harbor for a director who “should have known better.”

In the 2004 Emerging Communications case, a Delaware court determined that an outside director who, as an investment banker, possessed special expertise had no right to rely on a fairness opinion of the company’s independent investment banker. The court found that the director violated his duties of loyalty and/or good faith in approving a transaction because, given his background, he should have known that the transaction was unfair to minority shareholders.

The key takeaway: Although as a director you may generally rely on a report prepared by a third-party advisor, if you possess special knowledge or skill, you may not “leave it at the door” of the Boardroom! In your area of expertise, you may be held to a higher standard than your peers.

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Photo of John Thomas John Thomas

John Thomas, a partner in the firm’s Corporate practice, is a seasoned business transaction lawyer with more than 25 years of experience counseling and representing private and public companies in a variety of industries, including high technology, apparel, aviation, financial services, senior living…

John Thomas, a partner in the firm’s Corporate practice, is a seasoned business transaction lawyer with more than 25 years of experience counseling and representing private and public companies in a variety of industries, including high technology, apparel, aviation, financial services, senior living and clean technology. John focuses his practice on counseling and representing clients in mergers and acquisitions; corporate financings, including underwritten public securities offerings and private placements; joint ventures and strategic alliances; restructurings and spin-offs; purchases, sales and leases of aircraft and aviation finance; commercial transactions and contracts; periodic reporting and securities law compliance; and corporate governance.

Photo of Ned Prusse Ned Prusse

Ned Prusse is a partner in the firm’s Corporate & Securities practice. His practice focuses primarily on capital markets transactions, securities regulation and corporate governance. He represents clients in a wide variety of securities transactions, including underwritten public offerings and private placements of…

Ned Prusse is a partner in the firm’s Corporate & Securities practice. His practice focuses primarily on capital markets transactions, securities regulation and corporate governance. He represents clients in a wide variety of securities transactions, including underwritten public offerings and private placements of equity, debt and convertible securities, and tender offers. Ned regularly advises clients on SEC reporting, compliance and disclosure issues, stock exchange rules, proxy statements and executive compensation, corporate governance, debt financing, and general corporate matters. Ned also represents public and private companies in mergers and acquisition transactions.