Table Of ContentThe Corporate Contract
in Changing Times
The Corporate Contract
in Changing Times
Is the Law Keeping Up?
edited by steven dav idoff
solomon and r andall
stuart thomas
the university of chicago press chicago and london
The University of Chicago Press, Chicago 60637
The University of Chicago Press, Ltd., London
© 2019 by The University of Chicago
All rights reserved. No part of this book may be used or reproduced in any manner
whatsoever without written permission, except in the case of brief quotations in critical
articles and reviews. For more information, contact the University of Chicago Press,
1427 E. 60th St., Chicago, IL 60637.
Published 2019
Printed in the United States of America
28 27 26 25 24 23 22 21 20 19 1 2 3 4 5
isbn- 13: 978- 0- 226- 59940- 3 (cloth)
isbn- 13: 978- 0- 226- 59954- 0 (e- book)
doi: https:// doi .org/ 10 .7208/ chicago/ 9780226599540 .001 .0001
Library of Congress Cataloging-in-Publication Data
Names: Davidoff Solomon, Steven, 1970– editor. | Thomas, Randall S., 1955– editor.
Title: The corporate contract in changing times : is the law keeping up? / edited by
Steven Davidoff Solomon and Randall Stuart Thomas.
Description: Chicago ; London : The University of Chicago Press, 2019. |
Includes bibliographical references and index.
Identifi ers: lccn 2018035074 | isbn 9780226599403 (cloth : alk. paper) |
isbn 9780226599540 (ebook)
Subjects: lcsh: Contracts—United States. | Contracts—Delaware. | Corporations—
Investor relations—United States. | Corporations—Finance—Law and legislation—
United States.
Classifi cation: lcc kf801.c677 2019 | ddc 346/.066—dc23
lc record available at https://lccn.loc.gov/2018035074
This paper meets the requirements of ansi/niso z39.48– 1992 (Permanence of Paper).
Contents
Foreword vii
Leo E. Strine Jr.
Introduction 1
chapter 1. Why New Corporate Law Arises: Implications for
the Twenty- First Century 3
Robert B. Thompson
chapter 2. The Rise and Fall of Delaware’s Takeover Standards
Steven Davidoff Solomon and Randall S. Thomas 29
chapter 3. In Search of Lost Time: What If Delaware Had Not
Adopted Shareholder Primacy? 48
David J. Berger
chapter 4. The Odd Couple: Delaware and Public Benefi t
Corporations 88
Michael B. Dorff
chapter 5. Delaware’s Diminishment? 110
Hillary A. Sale
chapter 6. Delaware and Financial Risk 130
Frank Partnoy
chapter 7. Hedge Fund Activism, Poison Pills, and the
Jurisprudence of Threat 156
William W. Bratton
vi Contents
chapter 8. Corporate Governance beyond Economics 183
Elizabeth Pollman
chapter 9. The Many Modern Sources of Business Law 206
Colleen Honigsberg and Robert J. Jackson Jr.
chapter 10. Appraisal after Dell 222
Guhan Subramanian
chapter 11. Boilermakers and the Contractual Approach to
Litigation Bylaws 244
Jill E. Fisch
chapter 12. Litigation Rights and the Corporate Contract 273
Verity Winship
chapter 13. Private Ordering Post- Trulia: Why No- Pay Provisions
Can Fix the Deal Tax and Forum Selection
Provisions Can’t 292
Sean J. Griffi th
chapter 14. International Compliance Regimes 319
Stavros Gadinis
List of Contributors 337
Index 339
Foreword
Leo E. Strine Jr.
As you read this provocative collection of incisive refl ections on
whether the corporate contract is keeping up with changing times,
you might usefully refl ect on this question: Is corporate law scholarship
keeping up with a rapidly changing world?
This excellent gathering of thoughts from many of America’s leading
corporate law scholars brought this question to my mind as I considered
how some of our best minds have approached new dynamics from what
largely seem to be the same perspectives that have long shaped academic
corporate law thinking. Writing a foreword that does justice to such a di-
verse collection of provocative essays is a task, as an evidence treatise
would say, beyond my ken. What you take from the essays will inevita-
bly depend on your perspective, the mood you are in when you dig into
them, and your openness to new ideas.
Perhaps the only real service I can be to you, the reader, is to share a
few reactions I had to the collection, with the idea that they may inspire
you to consider how the various pieces, taken as a whole, might reveal
some promising paths forward for new thinking and policy ideas.
As in most cases when various minds come together, the most inter-
esting way to read this collection is to consider the dissonance of the var-
ious perspectives, and what that suggests about the state of thinking and
of actual corporate governance dynamics. For example, several eminent
scholars1 suggest that Delaware has adopted a form of corporate law, of
both the statutory and common law variety, that limits stockholder infl u-
ence markedly.2 They also seem to lament the relative scarcity of judicial
injunctions, yearning nostalgically for another period such as 1985–1 988,
when they were all the rage.3 By contrast, another learned commentator
viii Leo E. Strine Jr.
bemoans the extent to which Delaware corporate law has required direc-
tors, within the limits of their legal and ethical discretion, to make stock-
holder welfare the end of for- profi t corporate governance, with other
constituencies entitled to consideration only to the extent that doing so
is consistent with advancing stockholder welfare.4 Because of Delaware’s
prominence, he speculates that judicial rhetoric elevating other constitu-
encies to the same level as the only constituency given rights in the Del-
aware General Corporate Law would have stimulated much different,
other- regarding behavior by corporations. Still others suggest that recent
Delaware efforts to adopt a form of for-p rofi t corporation that explicitly
requires that all corporate constituencies be treated as an end of gover-
nance and be treated with due regard are arguably unnecessary because
all Delaware corporations can already do that.5
What I found curious in this clash, honestly, was the lack of a con-
sistent focus on the power structure established by Delaware law (and
utilized in concert with federally mandated disclosures and Rule 14a- 8)
that has affected the real world within which for- profi t public entities
that make products and deliver services must operate. Bemoaning the
absence of injunctions under Unocal and Revlon in an era when struc-
tural defenses have been largely torn down and it has never been eas-
ier to take over a company without a fi ght seems to miss the most im-
portant reality. Suggesting that somehow Delaware judicial protection
of the ballot box has been eroded in an era when proxy fi ghts are more
common than ever, dissident directors are regularly seated on boards,
and companies back down constantly at the threat of a fi ght also seems
to be misdirected. But then again, so, too, does suggesting that the world
would be a different place if the Delaware judiciary had simply stated
that directors of for- profi t entities could regard constituencies such as
workers and the community as equal ends of for-p rofi t governance with
the only citizens recognized by American corporate law— stockholders.
After all, in jurisdictions in the United States where antitakeover and
constituency statutes were adopted, there is no discernible trend toward
protecting other constituencies. Outsourcing, offshoring, and regula-
tory shortcuts are just as, if not more, common, in corporations char-
tered in such states. Perhaps all that is different is that management has
had more potential to use those statutes as leverage for itself. No trend of
their use for workers exists.
Likewise, I yearned to see in the chapters a connection between the
incentive systems within which key actors work and the policy points.
Foreword ix
For example, the excellent chapter on the importance of director over-
sight in the context of fi nancially important fi rms cries out for a recogni-
tion that market pressures on corporate governance may have led bank
boards to be less equipped to manage externality risk and less willing
to do so.6 Firms that engaged in the activities that led to the fi nancial
crisis got a premium for that behavior before the bubble burst.7 And of
course, these very fi nancial institutions had lobbied to relax the regula-
tory framework within which they conducted huge- scale fi nancial activ-
ity, posing risks for our entire economy. Not only that, but the push for
heightened independence standards and boards with large supermajori-
ties of independent directors may have led to the seating of supposedly
independent directors with no industry or professional experts to over-
see risk effectively and who were more responsive to immediate mar-
ket pressures than to the interests of long- term stockholders and the sta-
bility of the fi nancial system more generally. Is it really that Caremark8
with more teeth would do the trick? Or do we need to address the power
dynamics that affect corporate boards, including the behavior of institu-
tional investors and their priorities?
Put simply, I sense that clear-e yed and big- hearted thinkers such as
Adolf Berle, as a corporate law specialist, or George Orwell, as a keen
observer of human affairs, would be struck by the extent to which these
learned thinkers let their priors and focus on past policy debates distract
them from the more important overall trends in the real world over the
past decades. The comparative strength of stock market forces over cor-
porations has grown, just as all for-p rofi t corporations have been forced
to deal with intense international competition in product and services
markets. In an environment where only one corporate constituency has
power, when the legal moves have shifted power to the directors most
sensitive to stock market pressures and the reputational threat of tan-
gling with stockholder activists— professional independent directors
with no strong ties to any company and with an ardent desire to stay in
the independent director network—i t is not surprising that corporations
have increasingly adopted the business and governance policies that
the most vocal in the market demand. The most vocal does not mean
the most rational, and none of the chapters focus on this fact. Rather, the
most vocal are the most active traders, the ones who deviate from stable
buy-a nd-h old policies the most and, of course, those for whom corpo-
rate governance sport has become a hobby. As a result, corporate gov-
ernance policies have moved in the direction of a “corporate California”
