Lyman P.Q. Johnson

Misreading the Williams Act

The Commission does not believe that any bill should be adopted which would either encourage or discourage takeover bids, nor does the Commission want to be involved in any way in passing upon the merits or conditioning the terms of takeover bids. Manuel F. Cohen, Chairman of the SEC, during Senate committee hearings on the proposed Williams Act, 1967.1 [T]he [C]ommission has instructed us to support challenges to the constitutionality of the Delaware [antitakeover] statute .... I identified that as a top priority because our success or failure in those challenges will have a far[-]reaching effect on tender offer practice and quite likely on what Congress does with respect to tender offer legislation. aniel Goelzer, General Counsel of the SEC, July 22, 1988.2

Reality Check on Officer Liability

This article addresses the fiduciary duties of corporate officers. Responding to a critique that recent scholarly analyses of officers depart from reality, it argues that, on a variety of grounds, those analyses are more realistic than the critique and provide doctrinal coherence and advance the goal of meaningful executive accountability. The divergent governance functions of directing versus managing are described and it is argued that those disparate roles should matter for fiduciary duty analysis. No great outbreak of litigation should be expected if officers are held to a stricter duty of care than directors because boards of directors, not courts, likely will resolve the vast majority of disputes concerning officer breaches of duty. The ex-ante and ex post roles of fiduciary duties are emphasized, and the need for the Delaware legal community to more fully address officer duties is emphasized, lest the federal government emerge as the chief regulator of senior management, a role central to corporate governance.

Relating Fiduciary Duties to Corporate Personhood and Corporate Purpose

The subjects of corporate personhood, corporate purpose, and fiduciary duties are all central to corporate law discourse. But what is the relationship of each of these to the others? This chapter describes how corporate personhood, corporate purpose, and fiduciary duties are vitally and coherently connected. While longstanding debates about the theoretical nature of corporateness likely will continue, corporations are meaningful socio-legal entities separate and distinct from those persons associated with them. With respect to corporate purpose, the objective or “mission” of a business company is to provide goods or services in a particular manner, goals that may in part be non-monetary in nature and that are not necessarily the ultimate aims or motives of all individuals choosing to associate with a corporation. Moreover, corporate law generally is agnostic and broadly permissive as to a company’s goals, and shareholder well-being is better understood as an outcome of corporate success, not necessarily the very point of business enterprise. Taking these considerations together, corporations as distinct entities can and do have purposes separate and apart from those of its shareholders and other constituencies who choose, so to speak, to submit voluntarily to the jurisdiction of the corporation. This is an important characteristic of a burgeoning institutional pluralism not just in the business sector, but in modern society more generally, as different organizations pursue, to varying degrees, different entity-specific objectives.Part 3 introduces fiduciary duties into this picture, arguing that corporate boards of directors collectively have the statutory governance responsibility, and corporate directors individually have the fiduciary duty, to act in the best interests of the corporate entity, which is to say, to act to advance the purposes of the corporation, whatever they might be. Thus, stated most strongly, the directorial fiduciary duty of loyalty is to act in the best interests of the corporation (a distinct person) by affirmatively advancing the articulated corporate purpose(s). But to fully explain the policy of strong judicial deference to director prerogative and discretion in charting corporate direction, and the empirical reality that remedial relief is rare even in the face of director failure to fulfill duty - that is, failure to devotedly advance corporate purpose - a weaker version of loyalty is judicially demanded, i.e., nonbetrayal of the corporation’s institutional interests and purpose, not their fully faithful attainment. In this way, corporate law discourse can express a strong coherent demand that directors loyally serve the private corporation’s distinctive purposes even as public courts, institutionally, can only enforce a weaker demand that directors not betray those interests.

The Reconfiguring of Revlon

Three decades later, an irksome uncertainty still impedes a settled understanding of the Delaware Supreme Court’s landmark ruling in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. For such a towering doctrine, Revlon’s underlying rationales remain controversial, its exact contours and demands continue to be surprisingly unclear, and it holds out scant hope for remedial relief. In spite of these troubling features of today’s Revlon jurisprudence, however, Revlon is slowly being worked back into the larger fabric of Delaware’s fiduciary duty law and away from being a gangling, standalone doctrine. The organizing themes of this judicial project are strong deference in the deal context to decisions made by independent directors without regard to deal structure, the substantially reduced likelihood of equitable or monetary remedies in all types of deal-related lawsuits, and a nascent effort at harmonizing Revlon with Delaware’s more general, and ill-defined, doctrine on corporate purpose.This chapter discusses the original Revlon decision and its rapid expansion before turning to lingering uncertainties surrounding the reach of Revlon, the decline of Revlon’s remedial clout, and where Revlon stands today in relation to Delaware’s overall fiduciary duty law. Revlon’s sharp focus on immediate value maximization was a breakthrough pronouncement on corporate purpose, a subject of longstanding national debate but one on which the Delaware Supreme Court had been strangely silent. However, grave reservations about whether and when corporate directors should be required to pursue short term goals found useful cover in sustained judicial murkiness over the boundaries of Revlon. Only if Delaware courts resolve the underlying issue of corporate purpose more generally will Revlon either be fitted into the larger body of Delaware law or continue to stand uncomfortably to the side as a doctrinal loner of diminished significance.