I want to return for a moment to what I consider the rather remarkable comments by SEC Commissioner Paul Atkins on the protections that the judicially-created business judgment rule affords corporate boards that engage in springloading options grants. He also warns that the SEC must not undercut the business judgment rule through its enforcement actions. In my view, this approach wrongly places the SEC in the position of having to apply the business judgment rule to a set of circumstances. If the Commission is to eschew an enforcement action out of respect for the business judgment rule, it follows that the Commission will have to decide if the board that granted the options could properly avail itself of the protection of this ancient rule.
The business judgment rule is a case-driven quintessential creation of judge-made common law, to be interpreted by the courts. We are told that one of the reasons that so many companies incorporate in Delaware is to be in a jurisdiction with courts that are expert in corporate law and to partake of the certainty that comes with consistent interpretations of corporate doctrines, such as the business judgment rule, which has been interpreted over decades in countless Delaware court decisions. Does the SEC, can the SEC, really want to be put in a position of applying the business judgment rule?