The fiduciary duties of directors are often seen as the foundation of corporate governance and the protection of the interests of shareholders. The Pennsylvania Business Corporation Law (the BCL) has codified both the duty of care and the duty of loyalty in Section 1712, while there is no similar codification of these duties in Delaware. Instead, Delaware law regarding corporate fiduciary duties has largely been created by common law. Although the formulation of these duties appears similar in Pennsylvania and Delaware, Pennsylvania law approaches a challenge to a director’s actions quite differently when dealing with a change of control situation. As a result, Pennsylvania practitioners should be careful in looking to Delaware for guidance in these situations. Because of this difference in approach, there may be a greater risk to transactions than Pennsylvania practitioners may expect.

The BCL formulation of the duty of care requires that directors perform their duties “with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances.” The duty of loyalty obligates directors to act “in good faith and in a manner they reasonably believe to be in the best interests of the corporation.” A typical version of this formulation under Delaware law “requires that directors inform themselves of all material information reasonably available” before making a decision for the corporation, and provides that “a director cannot act loyally toward the corporation unless she acts in the good faith belief that her actions are in the corporation’s best interest.”

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