Jerome W. Van Gorkom
Encyclopedia
Jerome William Van Gorkom (August 6, 1917 – March 17, 1998) was a United States
businessman who was U.S. Under Secretary of State for Management 1982-83. He served as the CEO of TransUnion
for eighteen years. Van Gorkom is probably best known as the named plaintiff in the landmark corporate law
case of Smith v. Van Gorkom
, 488 A.2d
858 (Del. 1985), which involved the merger of TransUnion with the Marmon Group
in 1980.
in 1939. He then attended the University of Illinois College of Law, receiving a J.D.
in 1941.
After law school, Van Gorkom joined the United States Navy
, serving until the end of World War II
in 1945. After the war, Van Gorkom became an associate attorney
at the Chicago
law firm
of Kix, Miller, Baar & Morris. He stayed there only two years, leaving in 1947 to become an accountant at Arthur Andersen
. He became a partner
at Arthur Andersen in 1954.
In 1956, Van Gorkom joined TransUnion
, the third largest credit bureau
in the United States, as comptroller. He later served as TransUnion's chief executive officer
from 1962 to 1980. In September 1980, in a move that would later prove highly controversial, Van Gorkom contacted Jay Pritzker
and offered to merge TransUnion with the Marmon Group
, a company controlled by Pritzker, with the Marmon Group acquiring TransUnion at a price of $55/share.
In January 1980, Van Gorkom became president of the Chicago School Finance Authority, a body newly created by the Government of Illinois
to turn around the Chicago Public Schools
, which were running a $94 million annual operating deficit. In this capacity, Van Gorkom was widely credited with turning around the schools' finances.
In September 1982, President of the United States
Ronald Reagan
nominated Van Gorkom as Under Secretary of State for Management and, after Senate confirmation, Van Gorkom held this office from December 22, 1982 until October 14, 1983.
In the meantime, the case of Smith v. Van Gorkom
, a derivative suit
brought on behalf of TransUnion shareholders, was winding its way through the courts. The lawsuit claimed that Van Gorkom and the Board of Directors
of TransUnion had violated their fiduciary duty to shareholders in recommending the acquisition of TransUnion by the Marmon Group at the price of $55/share. On July 6, 1982, the Delaware Court of Chancery
ruled in favor of Van Gorkom and the TransUnion directors, finding that their actions were protected by the business judgment rule
. The Supreme Court of Delaware overruled this decision on January 29, 1985, holding that the directors were grossly negligent, because they quickly approved the merger without substantial inquiry or any expert advice. For this reason, the board of directors breached the duty of care
that it owed to the corporation's shareholders. As such, the protection of the business judgment rule
was unavailable. This decision sent shockwaves through the U.S. business community, and led to directors and officers liability insurance
becoming much more expensive. Daniel Fischel
criticized the Smith v. Van Gorkom opinion as "one of the worst decisions in the history of corporate law." Van Gorkom, previously a well-liked member of the Chicago business community, was criticized in some quarters for his performance in negotiating the merger of TransUnion.
In the course of his career, Van Gorkom served on the board of directors of thirteen corporations, including the Chicago Board of Trade
, IC Industries, and the Inland Steel Company
. He spent three years as chairman of the Securities Investor Protection Corporation
. He was also active in the non-profit sector, serving as chairman of the Lyric Opera of Chicago
; as trustee
of the University of Notre Dame
; as director of the Council on Foreign Relations
; as trustee of the Michael Reese Hospital
; and as a fundraiser for Catholic Charities
.
Van Gorkom lived in Lake Forest, Illinois
for forty years. He received an honorary
LL.D. from Lake Forest College
in 1988. Van Gorkom died in Lake Forest on March 17, 1998 at the age of 80. He was survived by his wife, Betty Jean (Alexander) Van Gorkom, and two daughters, Gayle (Van Gorkom) Richardson and Lynne (Van Gorkom) Villalobos.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
businessman who was U.S. Under Secretary of State for Management 1982-83. He served as the CEO of TransUnion
TransUnion
TransUnion is the third largest credit bureau in the United States, which offers credit-related information to potential creditors. Like major competitors Equifax and Experian, TransUnion markets credit reports directly to consumers.- History :...
for eighteen years. Van Gorkom is probably best known as the named plaintiff in the landmark corporate law
Corporate law
Corporate law is the study of how shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community and the environment interact with one another. Corporate law is a part of a broader companies law...
case of Smith v. Van Gorkom
Smith v. Van Gorkom
Smith v. Van Gorkom 488 A.2d 858 is an important Delaware Supreme Court decision, primarily because of its discussion of a director's duty of care. It is often called the "Trans Union case".-Facts:...
, 488 A.2d
Atlantic Reporter
The Atlantic Reporter is a United States regional case law reporter. It is part of the National Reporter System created by John B. West for West Publishing Company, which is now part of Thomson West....
858 (Del. 1985), which involved the merger of TransUnion with the Marmon Group
Marmon Group
Marmon Group is a United States holding company headquartered in Chicago, Illinois.Marmon Group owns companies that produce electrical components, industrial components and transportation equipment, and provide services including construction and retail solutions.- History :In 1953 Jay Pritzker and...
in 1980.
Biography
Jerome W. Van Gorkom was educated at the University of Illinois at Urbana–Champaign, receiving a B.S.Bachelor of Science
A Bachelor of Science is an undergraduate academic degree awarded for completed courses that generally last three to five years .-Australia:In Australia, the BSc is a 3 year degree, offered from 1st year on...
in 1939. He then attended the University of Illinois College of Law, receiving a J.D.
Juris Doctor
Juris Doctor is a professional doctorate and first professional graduate degree in law.The degree was first awarded by Harvard University in the United States in the late 19th century and was created as a modern version of the old European doctor of law degree Juris Doctor (see etymology and...
in 1941.
After law school, Van Gorkom joined the United States Navy
United States Navy
The United States Navy is the naval warfare service branch of the United States Armed Forces and one of the seven uniformed services of the United States. The U.S. Navy is the largest in the world; its battle fleet tonnage is greater than that of the next 13 largest navies combined. The U.S...
, serving until the end of World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
in 1945. After the war, Van Gorkom became an associate attorney
Associate attorney
An associate attorney is a lower-level employee of a traditional law firm who does not hold an ownership interest as a partner.-Attorneys:An associate may be a junior or senior associate, but normally does not yet hold an ownership interest in the firm even if they have been associated with the...
at the Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
law firm
Law firm
A law firm is a business entity formed by one or more lawyers to engage in the practice of law. The primary service rendered by a law firm is to advise clients about their legal rights and responsibilities, and to represent clients in civil or criminal cases, business transactions, and other...
of Kix, Miller, Baar & Morris. He stayed there only two years, leaving in 1947 to become an accountant at Arthur Andersen
Arthur Andersen
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations...
. He became a partner
Partner (business rank)
A partner in a law firm, accounting firm, consulting firm, or financial firm is a highly ranked position. Originally, these businesses were set up as legal partnerships in which the partners were entitled to a share of the profits of the enterprise. The name has remained even though many of these...
at Arthur Andersen in 1954.
In 1956, Van Gorkom joined TransUnion
TransUnion
TransUnion is the third largest credit bureau in the United States, which offers credit-related information to potential creditors. Like major competitors Equifax and Experian, TransUnion markets credit reports directly to consumers.- History :...
, the third largest credit bureau
Credit bureau
A credit bureau , or credit reference agency is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill paying habits...
in the United States, as comptroller. He later served as TransUnion's chief executive officer
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
from 1962 to 1980. In September 1980, in a move that would later prove highly controversial, Van Gorkom contacted Jay Pritzker
Jay Pritzker
Jay Arthur Pritzker was an American entrepreneur and conglomerate organizer.-Biography:Pritzker was born in Chicago, Illinois, the son of Fanny and A. N. Pritzker. His brother was Robert Pritzker...
and offered to merge TransUnion with the Marmon Group
Marmon Group
Marmon Group is a United States holding company headquartered in Chicago, Illinois.Marmon Group owns companies that produce electrical components, industrial components and transportation equipment, and provide services including construction and retail solutions.- History :In 1953 Jay Pritzker and...
, a company controlled by Pritzker, with the Marmon Group acquiring TransUnion at a price of $55/share.
In January 1980, Van Gorkom became president of the Chicago School Finance Authority, a body newly created by the Government of Illinois
Illinois
Illinois is the fifth-most populous state of the United States of America, and is often noted for being a microcosm of the entire country. With Chicago in the northeast, small industrial cities and great agricultural productivity in central and northern Illinois, and natural resources like coal,...
to turn around the Chicago Public Schools
Chicago Public Schools
Chicago Public Schools, commonly abbreviated as CPS by local residents and politicians and officially classified as City of Chicago School District #299 for funding and districting reasons, is a large school district that manages over 600 public elementary and high schools in Chicago, Illinois...
, which were running a $94 million annual operating deficit. In this capacity, Van Gorkom was widely credited with turning around the schools' finances.
In September 1982, President of the United States
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
nominated Van Gorkom as Under Secretary of State for Management and, after Senate confirmation, Van Gorkom held this office from December 22, 1982 until October 14, 1983.
In the meantime, the case of Smith v. Van Gorkom
Smith v. Van Gorkom
Smith v. Van Gorkom 488 A.2d 858 is an important Delaware Supreme Court decision, primarily because of its discussion of a director's duty of care. It is often called the "Trans Union case".-Facts:...
, a derivative suit
Derivative suit
A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are unique because under traditional corporate law,...
brought on behalf of TransUnion shareholders, was winding its way through the courts. The lawsuit claimed that Van Gorkom and the Board of Directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
of TransUnion had violated their fiduciary duty to shareholders in recommending the acquisition of TransUnion by the Marmon Group at the price of $55/share. On July 6, 1982, the Delaware Court of Chancery
Delaware Court of Chancery
The Delaware Court of Chancery is a court of equity in the American state of Delaware. It is one of Delaware's three constitutional courts, along with the Supreme Court and Superior Court.-Jurisdiction:...
ruled in favor of Van Gorkom and the TransUnion directors, finding that their actions were protected by the business judgment rule
Business judgment rule
The business judgment rule is a US case law-derived concept in corporations law whereby the "directors of a corporation . . . are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose...
. The Supreme Court of Delaware overruled this decision on January 29, 1985, holding that the directors were grossly negligent, because they quickly approved the merger without substantial inquiry or any expert advice. For this reason, the board of directors breached the duty of care
Duty of care
In tort law, a duty of care is a legal obligation imposed on an individual requiring that they adhere to a standard of reasonable care while performing any acts that could foreseeably harm others. It is the first element that must be established to proceed with an action in negligence. The claimant...
that it owed to the corporation's shareholders. As such, the protection of the business judgment rule
Business judgment rule
The business judgment rule is a US case law-derived concept in corporations law whereby the "directors of a corporation . . . are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose...
was unavailable. This decision sent shockwaves through the U.S. business community, and led to directors and officers liability insurance
Directors and officers liability insurance
Directors and Officers Liability Insurance is liability insurance payable to the directors and officers of a company, or to the organization itself, to cover damages or defense costs in the event they suffer such losses as a result of a lawsuit for alleged wrongful acts while acting in their...
becoming much more expensive. Daniel Fischel
Daniel Fischel
Daniel R. Fischel is the emeritus Lee and Brena Freeman Professor of Law and Business and former Dean of University of Chicago Law School, and a co-founder of Lexecon...
criticized the Smith v. Van Gorkom opinion as "one of the worst decisions in the history of corporate law." Van Gorkom, previously a well-liked member of the Chicago business community, was criticized in some quarters for his performance in negotiating the merger of TransUnion.
In the course of his career, Van Gorkom served on the board of directors of thirteen corporations, including the Chicago Board of Trade
Chicago Board of Trade
The Chicago Board of Trade , established in 1848, is the world's oldest futures and options exchange. More than 50 different options and futures contracts are traded by over 3,600 CBOT members through open outcry and eTrading. Volumes at the exchange in 2003 were a record breaking 454 million...
, IC Industries, and the Inland Steel Company
Inland Steel Company
The Inland Steel Company was a U.S. steel company active in 1893-1998. Its history as an independent firm thus spanned much of the 20th century. It was headquartered in Chicago, Illinois at the landmark Inland Steel Building....
. He spent three years as chairman of the Securities Investor Protection Corporation
Securities Investor Protection Corporation
The Securities Investor Protection Corporation is a federally mandated, non-profit, member-funded, corporation in the United States. It protects investors in certain securities from financial harm if a broker-dealer fails...
. He was also active in the non-profit sector, serving as chairman of the Lyric Opera of Chicago
Lyric Opera of Chicago
Lyric Opera of Chicago is one of the leading opera companies in the United States. It was founded in Chicago in 1952, under the name 'Lyric Theatre of Chicago' by Carol Fox, Nicolà Rescigno and Lawrence Kelly, with a season that included Maria Callas's American debut in Norma...
; as trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
of the University of Notre Dame
University of Notre Dame
The University of Notre Dame du Lac is a Catholic research university located in Notre Dame, an unincorporated community north of the city of South Bend, in St. Joseph County, Indiana, United States...
; as director of the Council on Foreign Relations
Council on Foreign Relations
The Council on Foreign Relations is an American nonprofit nonpartisan membership organization, publisher, and think tank specializing in U.S. foreign policy and international affairs...
; as trustee of the Michael Reese Hospital
Michael Reese Hospital
Michael Reese Hospital and Medical Center was an American hospital founded in 1881. In its heyday, it was a major research and teaching hospital and one of the oldest and largest hospitals in Chicago, Illinois. It was located on the near south side of Chicago, next to Lake Shore Drive Michael...
; and as a fundraiser for Catholic Charities
Catholic Charities
Catholic Charities is a network of charities whose aim is "to provide service to people in need, to advocate for justice in social structures, and to call the entire church and other people of good will to do the same." It is one of the largest charities in the United States...
.
Van Gorkom lived in Lake Forest, Illinois
Lake Forest, Illinois
Lake Forest is an affluent city located in Lake County, Illinois, United States. The city is south of Waukegan along the shore of Lake Michigan, and is a part of the Chicago metropolitan area and the North Shore. Lake Forest was founded around Lake Forest College and was laid out as a town in...
for forty years. He received an honorary
Honorary degree
An honorary degree or a degree honoris causa is an academic degree for which a university has waived the usual requirements, such as matriculation, residence, study, and the passing of examinations...
LL.D. from Lake Forest College
Lake Forest College
Lake Forest College, founded in 1857, is a private liberal arts college in Lake Forest, Illinois. The college has 1,500 students representing 47 states and 78 countries....
in 1988. Van Gorkom died in Lake Forest on March 17, 1998 at the age of 80. He was survived by his wife, Betty Jean (Alexander) Van Gorkom, and two daughters, Gayle (Van Gorkom) Richardson and Lynne (Van Gorkom) Villalobos.