This Article examines a question that Delaware law has grappled with for several decades: whether and when approval by independent directors, without a supplemental majority-of-the-minority (MOM) approval, is sufficient to cleanse corporate actions involving a controller conflict. After decades-long swings of the judicial pendulum, a recent legislative amendment to the Delaware General Corporation Law (DGCL) permits independent director approval to serve in all non-freezeout settings as a cleansing mechanism. In this Article, we explain that the case for general reliance on independent director approval outside freezeouts is untenable; the incentives of independent directors that were elected and can be replaced by the controller are just as problematic in non-freezeout setting—if not more so—than in freezeout settings.
We then put forward a unified approach to protect public investors from controller-related conflicts in an effective and internally consistent manner. Under this approach, for all decisions requiring a statutory vote—including not only freezeouts but also charter amendments and reincorporations—the case for applying the MFW framework is strong and cleansing should require MOM approval. However, for decisions where a vote is not statutorily required, cleansing could also be achieved through approval by “enhanced independence” directors—that is, directors whose appointment received MOM approval.