Financial Advisor Engagement Letters: Post-Rural/Metro Thoughts and Observations
34 Pages Posted: 10 May 2015 Last revised: 12 Jan 2016
Date Written: December 25, 2015
The liability of RBC in last year’s In re Rural/Metro decision was derivative of several breaches of fiduciary duty by the Rural/Metro directors, including those directors’ failing “to provide active and direct oversight of RBC.” In discussing that failure, the Court of Chancery stated that a “part of providing active and direct oversight is acting reasonably to learn about actual and potential conflicts faced by directors, management and their advisors.” In the year since Rural/Metro, there has been an ongoing discussion – in scholarly and trade journals, courtrooms and the marketplace – regarding how, if at all, the process of vetting potential financial advisor conflicts should evolve. In this article, we set out our belief that financial advisor engagement letters are an efficient (although admittedly not the only) tool to vet potential conflicts of a financial advisor. We then discuss four contractual provisions that, we believe, are helpful in providing the active and direct oversight that was found lacking in Rural/Metro.
Keywords: mergers, acquisitions, corporate law, corporate governance, Delaware, securities litigation, financial advisors, conflicts of interests, investment banking, fiduciary v. contractual relationships, conflict management, reputational marketplace
JEL Classification: G24, G34, K12, K22
Suggested Citation: Suggested Citation