Bad faith conduct in the boardroom is the fiduciary version of kryptonite; of Samson with shorn locks. Evidence of bad faith can rob the board of its traditional protections against breach of duty: the business judgment rule; exculpatory and indemnification protections provided through corporate bylaws, insurance policies, and statute; the ability to overcome preliminary motions in litigation; and the general deference afforded decisions of an informed and well-intentioned board. It's a concept with which the attentive board will want to be familiar.
A practical definition of bad faith conduct can be elusive; judicial decisions rarely describe it in terms of specific examples. Often, they speak to conduct that doesn't constitute bad faith, as opposed to conduct that does. Perhaps that's because the standard for proving bad faith conduct is so high that it's hard to find judicially sanctioned examples. That makes it fairly tough for the corporate counsel, when asked to describe what might constitute "bad faith" in a specific context.
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