Financial Advisor Engagement Letters: Post-Rural/Metro Thoughts and Observations

34 Pages Posted: 10 May 2015 Last revised: 12 Jan 2016

See all articles by Eric Klinger-Wilensky

Eric Klinger-Wilensky

Morris, Nichols, Arsht & Tunnell LLP

Nathan Emeritz

Morris, Nichols, Arsht & Tunnell LLP

Date Written: December 25, 2015

Abstract

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

Klinger-Wilensky, Eric and Emeritz, Nathan, Financial Advisor Engagement Letters: Post-Rural/Metro Thoughts and Observations (December 25, 2015). Business Lawyer, Vol. 71, Winter 2015-2016; U of Penn, Inst for Law & Econ Research Paper No. 15-19. Available at SSRN: https://ssrn.com/abstract=2604250

Eric Klinger-Wilensky (Contact Author)

Morris, Nichols, Arsht & Tunnell LLP ( email )

1201 N. Market Street
P.O. Box 1347
Wilmington, DE 19899
United States
302.351.9169 (Phone)
302.498.6220 (Fax)

HOME PAGE: http://www.mnat.com/attorneys-76.html

Nathan Emeritz

Morris, Nichols, Arsht & Tunnell LLP ( email )

1201 N. Market Street
P.O. Box 1347
Wilmington, DE 19899
United States
302.351.9209 (Phone)
302.425.3016 (Fax)

HOME PAGE: http://www.mnat.com/attorneys-189.html

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