Disclaimer: This case study is an experimental governance learning tool designed to enhance boardroom decision-making through historical analysis and fictionalized dialogue. It is for educational and discussion purposes only and does not constitute legal, financial, or investment advice. Any resemblance to actual boardroom events beyond the historical facts of the case is purely illustrative. Lyceum Leadership Consulting does not provide legal opinions, and readers should consult professional advisors for specific governance or fiduciary matters.

This is intended to be an immersive experience that we anticipate will take 15-20 minutes.

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Abstract

The landmark Trans Union Case or Smith v. Van Gorkom (1985) reshaped corporate governance by clarifying the fiduciary duty of care required of corporate directors. It is considered an important corporate governance case because it shows a unique scenario when the board is found liable even after applying the “business judgment rule.” The decision “stripped corporate directors and officers of the protective cloak formerly provided by the business judgment rule, rendering them liable for the tort of gross negligence for the violation of their duties under the rule.”

This paper examines the Trans Union merger, the board’s decision-making process, and the Delaware Supreme Court’s ruling, introducing and integrating a fictionalized and dramatized board meeting dialogue to highlight the governance failures that led to the directors’ liability.  

Unlike conventional case studies that merely recount events, this format immerses you in the decision-making process itself. You are not just reading—you are participating in a moment of history, with governance lessons unfolding in real time. To enhance learning, we introduce two fictionalized board members: The Sage and The Fool. These are not real individuals of course, but extreme governance archetypes designed to illustrate contrasting decision-making mindsets often found in boardrooms. 

With this framework in mind, let’s delve into the case and enter the boardroom at Trans Union and witness how history was made in just two hours.

I. Introduction to the Trans Union Case (a.k.a. Smith v. Van Gorkom)

In 1985, the Delaware Supreme Court issued a precedent-setting ruling in Smith v. Van Gorkom, holding that corporate directors could be personally liable for failing to exercise proper diligence in approving a major transaction.

The case arose from the $690 million leveraged buyout of Trans Union Corporation, a publicly traded company, which the board approved without independent valuation, external advice, or meaningful deliberation. The board’s reliance on a back-of-the-envelope calculation presented by its CEO, Jerome Van Gorkom, and its failure to explore alternatives, ultimately led to the court’s finding of gross negligence.

This case study explores:

1. The business context and rationale behind the merger. 
2. A fictionalized dramatization of the board meeting, highlighting discourse in the boardroom and key fiduciary failures. 
3. An epilogue, analyzing the board’s decisions in light of the Delaware Supreme Court ruling. 
4. The governance lessons that continue to shape corporate boardrooms today.

II. Background: Trans Union and the Rationale for the Merger

Trans Union Corporation 

Founded in 1968, Trans Union was a publicly traded, diversified holding company incorporated in Delaware. At the time of this case, its principal earnings were generated by its railcar leasing business, the Union Tank Car Company and the Credit Bureau of Cook County, Illinois, which managed 3.6 million credit accounts across Chicagoland. The credit bureau was the predecessor to TransUnion that we know today as one of the three major credit reporting bureaus and has been publicly traded since 2015. Union Tank Car Company, with a storied history as a direct descendant of the Standard Oil Company, would later become part of Berkshire Hathaway.  

Trans Union was led by Chairman and CEO Jerome W. Van Gorkom (1917–1998), a decisive, risk-taking executive with a long and respected career. He had served as an officer for more than 24 years, its CEO for 17 years, and chairman of the board for 2 years. Van Gorkom, a lawyer and certified public accountant, owned 75,000 shares of Trans Union and was approaching the company’s mandatory retirement age of 65.

By the late 1970s, the company faced a financial dilemma:

• It had substantial investment tax credits that could offset taxes, but not enough taxable income to utilize them fully. 
• Without a strategic move, these tax advantages would go to waste. 
• The board explored mergers or acquisitions as a way to generate taxable income and unlock shareholder value. 

With his retirement looming, Van Gorkom, without consulting the Trans Union board, initiated private negotiations with Jay A. Pritzker (1922–1999). Pritzker, chairman of The Marmon Group and founder of Hyatt Hotels, was renowned for strategic acquisitions and leveraged buyouts. The two men were social acquaintances, making discussions informal and confidential. 

On September 13, 1980, Van Gorkom met with Pritzker at his home and personally proposed selling Trans Union to Pritzker at a price of $55 per share, despite the stock trading at around $38 per share in the open market. 

Over the next several days, Van Gorkom and two inside directors privately met with Pritzker to solidify the deal. Then on September 19, Van Gorkom abruptly called a special board meeting for the next day, without disclosing its purpose in advance. At this meeting, he unveiled the Pritzker offer in a 20-minute presentation. No valuation study was prepared, and neither the full merger agreement nor a written summary of its terms was provided to the board members. After only two hours of discussion, the board voted in favor of the merger and also voted not to solicit any competing offers. 

At the time, Trans Union’s board consisted of ten members—five inside, executive directors and five independent directors. The outside directors had little prior involvement in merger discussions and relied heavily on Van Gorkom’s judgment during the meeting. 

The following evening, Van Gorkom executed the merger agreement at a formal social event—the season opening of the Chicago Lyric Opera. Neither he nor any other director read the agreement before signing it and delivering it to Pritzker. 

Despite interest from two other potential buyers, the board took active steps to dissuade them and recommended the deal to shareholders, declaring the $55 per share price to be fair. On February 10, 1981, 69.9% of Trans Union’s shares were voted in favor of the merger, and the deal was officially consummated and sealed the company’s fate. 

After the deal closed, a group of Trans Union shareholders, led by Alden Smith, filed suit against Van Gorkom and the other directors, alleging that they had been negligent in approving the merger without conducting due diligence. The Delaware Court of Chancery initially ruled in favor of the directors, but the shareholders appealed the decision. 

With the vote cast and the deal inked, the fate of Trans Union’s leadership—and its board’s judgment—would soon be tested not just in corporate history, but in the highest court of Delaware. 

The Delaware Supreme Court’s decision in Smith v. Van Gorkom held the directors of Trans Union Corporation liable for approving the sale of the company after a mere two-hour meeting. During this meeting, they relied on a twenty-minute oral presentation about the transaction, without reviewing the merger agreement or thoroughly investigating the basis for the agreed price. The court’s majority deemed this to be gross negligence.

However, a strong dissent—later echoed by other critics—questioned whether even ordinary negligence had occurred. Those challenging the majority’s conclusion argue that the directors were highly experienced business leaders with deep familiarity with the company. Given these factors, it is debatable whether they required additional time or external advice to determine whether the offered price, which represented a substantial premium over market value, was fair—particularly when shareholders retained the ability to reject the deal.

We will let you the reader decide for yourself, but regardless of which side is correct, the debate over Van Gorkom underscores illuminates the fiduciary duties of a board and allows for an excellent application of our dramatic, albeit fictious dialogue.

III. Inside the Boardroom: A Dramatization of the Decision-making Process 

To fully grasp the magnitude of the board’s decision, we reconstruct the critical moments of the meeting through a dramatized set of fictionalized board minutes. These minutes capture the voices, the setting, actions, reactions and reasoning through an all-seeing narrator. We try to create the pressures at play as the directors weighed the Pritzker offer. While the dialogue is fictionalized, it is rooted in historical facts, court records, and governance principles to illustrate the dynamics that led to one of the most consequential decisions in corporate governance history. 

To enhance learning we also introduce two important players into the drama for descriptive and educational purposes. The Sage and The Fool. These are not real individuals, but governance archetypes designed to illustrate contrasting decision-making mindsets often found in boardrooms. 

The Sage represents prudence, wisdom, and historical insight. He applies legal precedent and fiduciary principles, advocating for thorough due diligence and deliberation over momentum-driven decision-making. 

The Fool is not an outright antagonist—he is articulate, confident, and persuasive, embodying the kind of boardroom presence that often steers decisions in real corporate environments. However, his reasoning is rooted in logical fallacies, rhetorical manipulation, and appeals to speed over scrutiny. 

These characters serve to illuminate the battle between wisdom and expedience, illustrating how even well-intentioned directors can be swayed by flawed reasoning.

Hover over the embedded pdf below. Flip through the 8 pages by clicking the arrow buttons in the lower left corner of the pdf window.

Hover over the embedded pdf above. Flip through the 8 pages by clicking the arrow buttons in the lower left corner of the pdf window.

IV. Epilogue: The Verdict of History

The boardroom fell silent as the final vote was cast. A unanimous decision, locked in without dissent. The weight of the moment settled in the room, but its true gravity would only become clear in the years that followed. What felt like swift, decisive action in September 1980 would soon become one of the most scrutinized board decisions in corporate history. 

In 1985, history rendered its judgment. The Delaware Supreme Court, in Smith v. Van Gorkom, ruled that the board had breached its fiduciary duty by approving the deal without proper due diligence, independent valuation, or reasonable inquiry. The board’s actions fell so far below reasonable standards that they constituted gross negligence. The ruling shook corporate America, setting new standards for board responsibility and governance.

One decision. Two hours. And it echoes in boardrooms for eternity. 

The Sage in the Light of History

Had the Sage’s concerns been heeded, the board might have avoided disaster. The very doubts he raised—about the lack of a fairness opinion, the rushed nature of the decision, and the board’s reliance on Van Gorkom’s personal assurances—became the crux of the court’s findings. 

The Court found that: 

• The board was uninformed and did not conduct a meaningful review of the company’s value. 
• The directors failed to obtain independent financial advice before approving the deal. 
• The decision to forgo soliciting competing offers was negligent.

One director. One moment of hesitation. Had the Sage pushed just a bit harder, history might have been different.

The Fool’s Reasoning Under Scrutiny

The Fool, who had so confidently framed hesitation as weakness, was proved wrong. The court saw his brand of conviction for what it truly was: reckless rationalization disguised as leadership. His belief that speed was synonymous with strength had led the board into error. 

The ruling did not just impact Trans Union; it redefined the duty of care for corporate directors everywhere. No longer could boards rely on deference to management. No longer could they assume that a CEO’s personal assurances were a substitute for proper due diligence. 

V. Final Reflections: Lessons for Modern Directors 

Governance Lessons

The governance lessons of Smith v. Van Gorkom remain as relevant today as they were in 1985. Modern directors must ask themselves:

• Are we making decisions based on independent analysis, or are we deferring to authority? 
• Is momentum driving our discussion, or are we exercising true deliberation? 
• Do we equate decisiveness with speed, when it should mean confidence in the integrity of our process? 
• Are we challenging our own biases, or are we mistaking compliance for governance?

Communications Skills 

This case study reveals not just governance failures, but the persuasive tactics that fuel them. Many directors don’t make bad decisions out of malice; they are simply swayed by flawed but compelling reasoning.

Persuasion and Courage

The Sage was not wrong in what he saw, but his challenge was in how to make others see it. A director’s responsibility is not just to perceive risks—it is to persuade others to confront them. This case study reveals that the art of governance is as much about influence as it is about insight.

Although the sage did not prevail, he did several notable things: 

• He doesn’t attack Van Gorkom—he elevates process. 
• He doesn’t tell the Fool he’s wrong—he reframes caution as wisdom. 
• He doesn’t demand—he asks questions that lead the Fool toward his own conclusions.

A well-intentioned board can still fail if it does not foster a culture where skepticism is valued and persuasion is skillfully deployed.

Smith v. Van Gorkom teaches that governance is not simply about compliance or expertise—it is about having the courage to question when the room wants to move forward, and the skill to articulate why.  

• The most self-assured, resolute, and influential voice isn’t always the wisest.  
• The greatest fiduciary failures do not always come from malice or incompetence; more often, they come from a failure to stop, to question, and to demand clarity.

Recognizing Logical Fallacies in the Boardroom 

Below are key logical fallacies the Fool employs in the boardroom:

• False Dilemma (Either/Or Fallacy) – “If we hesitate now, we lose this deal forever.” The Fool presents only two choices, ignoring alternative paths like independent valuation. 
• Appeal to Authority – “Van Gorkom personally worked through the numbers.” Deference to leadership without verification is not governance. 
• Bandwagon Fallacy – “I’m sure I speak for everyone here when I say this is a fantastic deal.” Consensus does not guarantee correctness—it often masks critical thinking. 
• Hasty Generalization – “The only real risk here is hesitation.” The Fool assumes inaction is always worse than action, ignoring the risk of acting too quickly. 
• Ad Hominem (Veiled Attacks on the Sage) – “Our shareholders don’t want philosophers—they want results.” Instead of addressing the Sage’s concerns, the Fool subtly discredits him. 
• Poisoning the Well – “This is a board of action, not indecision.” The Fool preemptively frames any hesitation as weak, making real debate difficult. 
• Appeal to Ridicule – Smirking, the Fool dismisses caution as overthinking. The goal is not to refute but to undermine. 
• Social Proof – “Look around—everyone agrees this is the right move.” The Fool applies more social pressure on the Sage and the other directors to influence the vote. 
• Argument from Consequences – “If we delay, Pritzker may walk.” The Fool assumes an undesirable consequence proves the decision is right.

👉 This case study is designed to challenge and refine governance decision-making. Which lessons and insights will you take back into your own board craft? The reflection questions are a tool to help you make meaning from the case you read – and your insights are invaluable in helping us refine and improve future governance case studies.

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Disclaimer: This case study is an experimental governance learning tool designed to enhance boardroom decision-making through historical analysis and fictionalized dialogue. It is for educational and discussion purposes only and does not constitute legal, financial, or investment advice. Any resemblance to actual boardroom events beyond the historical facts of the case is purely illustrative. Lyceum Leadership Consulting does not provide legal opinions, and readers should consult professional advisors for specific governance or fiduciary matters.