Proactive Business Judgment In Proxy Contests

In a contest for shareholder support, control of the narrative is crucial, and the difference in perception between a board acting decisively to protect shareholders' investments, and a board willing to do or say anything to hold onto control, can be one of timing.  A board that acts proactively, supported by expert advice and a cogent rationale, invites the conclusion that it has exercised its judgment in the best interests of the company, but a board that acts defensively in reaction to a dissident risks the inference that its decisions are influenced by the directors' desire to keep their jobs.

This dichotomy is evident in two Ontario decisions in the last year, which have confirmed that directors have wide latitude to manage corporate affairs, but the courts will intervene where directors have manipulated dates or transactions to block a dissident challenge.