Leo E. Strine

The Great Takeover Debate: A Meditation on Bridging the Conceptual Divide

The past two decades have witnessed a vigorous continuation of the long-standing debate about the proper role of the corporation in our society. Recently, that debate has centered on the question of who -- the directors or the stockholders -- should have the ultimate power to decide whether the corporation should be sold to a bidder that offers to buy all the corporations shares at a substantial premium above the current stock market price. The contestants in this debate have been unable to reach any middle ground. That impasse is due in part to ideological differences between the two schools, but it is also due in part to a general satisfaction with the results achieved by the current state of Delaware corporate fiduciary law, which incorporates elements of, and balances, both positions. To relocate the debate to a different and perhaps more fruitful path, the authors suggest an approach that might provide a middle ground between the these two schools: corporate election reform. This Article raises, for discussion purposes only, the issue of whether it is possible to reform the director election process to increase director accountability to the stockholders while at the same time creating a cadre of directors having considerable flexibility to respond to takeover offers in a manner appropriately sensitive to shareholder interests. To stimulate more productive discussion about the nature of the corporation and the role of corporate law, the authors propose -- without embracing -- a reform that they suggest might have this effect.

The Professorial Bear Hug: The ESB Proposal as a Conscious Effort to Make the Delaware Courts Confront the Basic 'Just Say No' Question

In this essay, Vice Chancellor Strine responds to “The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy,” an article by Professors Bebchuk, Coates, and Subramanian, and highlights the basic policy choice that the authors ask the Delaware courts to enshrine in the common law of corporations. The question the authors ask Delaware courts to answer is fundamental: Can control of the corporation be sold over the objections of a disinterested board that believes in good faith that the sale is inadvisable? That is, at bottom, the authors want to force the hand of the Delaware courts to decide, once and for all, that impartial and well-intentioned directors do not have the fiduciary authority to “just say no” for an indefinite -- even perpetual -- period to a noncoercive tender offer made to their companys shareholders. Essentially, the authors seek a clear ruling about the proper allocation of power between stockholders and directors in responding to tender offers, and have made it more difficult for the courts to avoid giving an answer. Although “muddling through” has benefits that arguably exceed those that could be achieved by a bright-line rule, nonetheless, the authors have exposed some of the more obvious logical vulnerabilities that now exist in a common law of takeover defense that has, to date, not forthrightly confronted the bottom-line Just Say No question.

Securing Our Nation's Economic Future: A Sensible, Nonpartisan Agenda to Increase Long-Term Investment and Job Creation in the United States

These days it has become fashionable to talk about whether the incentive system for the governance of American corporations optimally encourages long-term investment, sustainable policies, and therefore creates the most long-term economic and social benefit for American workers and investors. Many have come to the conclusion that the answer to that question is no. As these commentators note, the investment horizon of the ultimate source of most equity capital — human beings who must give their money to institutional investors to save for retirement and college for their kids — is long. That horizon is much more aligned with what it takes to run a real business than that of the direct stockholders, who are money managers and are under strong pressure to deliver immediate returns at all times. Americans want corporations that are focused on sustainable wealth and job creation. But, there is too little talk accompanied by a specific policy agenda to address that incentive system. This paper proposes a genuine, realistic agenda that would better promote a sustainable, long-term commitment to economic growth in the United States. This agenda should not divide Americans along party lines. Indeed, most of the elements have substantial bipartisan support. Nor does this agenda involve freeing corporate managers from accountability to investors for delivering profitable returns. Rather, it makes all those who represent human investors more accountable, but for delivering on what most counts for ordinary investors, which is the creation of durable wealth by socially responsible means. The fundamental elements of this strategy to promote long-term American competitiveness include: (i) tax policy that discourages counterproductive behavior and encourages investment and work; (ii) investment policies to revitalize our infrastructure, address climate change, create jobs, and close our deficit; (iii) reforming the incentives of and enhancing the fiduciary accountability of institutional investors; (iv) reducing the focus on quarterly earnings estimates and improving the quality of information provided to investors; and (v) an American commitment to an international level playing field to reduce incentives to offshore jobs, erode the social safety net, and pollute the planet.

The Siren Song of Unlimited Contractual Freedom

One frequently cited distinction between alternative entities — such as limited liability companies and limited partnerships — and their corporate counterparts is the greater contractual freedom accorded alternative entities. Consistent with this vision, discussions of alternative entities tend to conjure up images of arms-length bargaining similar to what occurs between sophisticated parties negotiating a commercial agreement, such as a joint venture, with the parties successfully tailoring the contract to the unique features of their relationship. As judges who collectively have over 20 years of experience deciding disputes involving alternative entities, we use this chapter to surface some questions regarding the extent to which this common understanding of alternative entities is sound. Based on the cases we have decided and our reading of many other cases decided by our judicial colleagues, we do not discern evidence of arms-length bargaining between sponsors and investors in the governing instruments of alternative entities. Furthermore, it seems that when investors try to evaluate contract terms, the expansive contractual freedom authorized by the alternative entity statutes hampers rather than helps. A lack of standardization prevails in the alternative entity arena, imposing material transaction costs on investors with corresponding effects for the cost of capital borne by sponsors, without generating offsetting benefits. Because contractual drafting is a difficult task, it is also not clear that even alternative entity managers are always well served by situational deviations from predictable defaults. In light of these problems, it seems to us that a sensible set of standard fiduciary defaults might benefit all constituents of alternative entities. In this chapter, we propose a framework that would not threaten the two key benefits that motivated the rise of LPs and LLCs as alternatives to corporations: (i) the elimination of double taxation at the entity level and (ii) the ability to contract out of the corporate opportunity doctrine. For managers, this framework would provide more predictable rules of governance and a more reliable roadmap to fulfilling their duties in conflict-of-interest situations. The result arguably would be both fairer and more efficient than the current patchwork yielded by the unilateral drafting efforts of entity sponsors.

Regular (Judicial) Order as Equity: The Enduring Value of the Distinct Judicial Role

Inaugural Harold E. Kohn Lecture delivered at the Temple University Beasley School of Law, on October 9, 2014.