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The business judgment doctrine is a rule of law that insulates business decisions from most forms of review.
From 1973 until August 1983 William A. Kumpf was the president and chief executive officer of Lincoln National Sales Corp. of Wisconsin (Lincoln Wisconsin). In April 1981, Orin A. Steinhaus became an executive vice-president of Lincoln Life. The president gave Steinhaus and other employees the task of revising the firm's sales structure, which was losing money. Steinhaus decided to consolidate five midwestern sales agencies into a single agency. He further instructed Lincoln Sales's directors on the board of Lincoln Wisconsin to approve a merger of Lincoln Wisconsin into Lincoln Chicago Corp. (Lincoln Chicago); Lincoln Wisconsin's board approved the merger resulting in the dissolution of Lincoln Wisconsin. Consequently, the president lost his job. The vice president then became the president of the merged corporation. Kumpf instituted the present complaint. The district court dismissed most of Kumpf's claims for relief but sent to the jury a claim that Steinhaus and the Lincoln corporations tortiously interfered with the employment contract between Kumpf and Lincoln Wisconsin. The defendants maintained that their interference with Kumpf's contract was privileged because it took place in the course of business. Kumpf replied that it was not privileged because it was done with an improper motive. An instruction was given to the jury that stated that if they found that the vice president and the parent corporation were motivated solely by a desire for revenge, ill will, malice, or solely by personal considerations, then their actions were improper. The jury returned a verdict for the defendants. Kumpf challenged the “sole motive” instruction.
Was the defendant’s interference with Kump’s contract privileged?
The Court found that the decision to consolidate agencies and change managers was not "collateral" to the business, therefore it was privileged. According to the Court, the basis of the privilege in question was the economic relations among the Lincoln family of corporations. The managers of the firm at the apex of the structure have an obligation to manage the whole structure in the interests of investors. The Court noted that corporate reorganizations may reduce the costs of operation and put the structure in the hands of better managers, though this may be costly to existing managers. The Court averred that the rationale of the business judgment rule interdicted any attempt to look behind the decision to determine whether the vice president was an astute manager.