Anyone who has had the opportunity to teach corporate law understands how difficult it is to provide a compelling explanation of why the business judgment rule (the "Rule") is so important. To provide a better explanation of why this is so, this Article takes the approach that the Aronson formulation of the Rule is not the proper starting place. Instead, this Article begins by starting with a close read of two cases that initiated the application of the Rule under Delaware law: the Chancery Court and Supreme Court opinions in Bodell v. General Gas & Electric. By taking this approach, the following insights into the Rule-which are not as readily apparent when the starting point is Aronson-are discovered. First, without the Rule, the raw power of equity could conceivably require all challenged board of directors ("Board") decisions to undergo an entire fairness review. The Rule is the tool used by a court to restrain itself from persistently implementing such a review. This is the most important function of the Rule. Second, as a result of the need to restrain equity, there

Under an Arrowian framework, centralized authority and management provides for optimal decision making in large organizations. However, Kenneth Arrow also recognized that other elements within the organization, beyond the central authority, occasionally may have superior information or decision-making skills. In such cases, such elements may act as a corrective mechanism within the organization. In the context of public companies, this Article finds that such a corrective mechanism comes in the form of hedge fund activism, or, more accurately, offensive shareholder activism.

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