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Former Delaware Chancellor William (Bill) Chandler and Elizabeth Hecker, a fellow lawyer at Wilson Sonsini Goodrich & Rosati presented on benefit corporations and Delaware law at the Berle VIII conference. I cannot fully communicate how exciting it was to hear a distillation of Delaware law generally and several opinions specifically from a judge involved in the cases.  In short: it was thrilling.

Former Chancellor Chandler discussed the Delaware case law interpretation of shareholder value and its place in analyzing corporate transactions.  While these aren’t words that he used, I have been thinking a lot about this tension as a question of complimenting or competing.  The simple message was that the “inc.” behind corporate names means something.  But the question, is what does that mean?  It signals, among other things, that a Delaware court will invalidate a board of directors’ other serving actions only if they are in conflict with shareholder value, but never when it is complimentary.   And there is a expanding appreciation of when “other interests” are seen as complimentary to, and not in competition with, shareholder value maximization.

Former Chancellor Chandler reminded us that shareholder value can include long term interests as the Delaware Chancery Court concluded in February…

Three Business Law Prof Blog editors (myself included) are presenting at the upcoming Berle Symposium on June 27-28 in Seattle.

Colin Mayer (Oxford) is the keynote speaker, and I look forward to hearing him present again. I blogged on his book Firm Commitment after I heard him speak at Vanderbilt a few of years ago. The presenters also include former Chancellor Bill Chandler of the Delaware Court of Chancery. Given that Chancellor Chandler’s eBay v. Newmark decision is heavily cited in the benefit corporation debates, it will be quite valuable to have him among the contributors. The author of the Model Benefit Corporation Legislation, Bill Clark, will also be presenting; I have been at a number of conferences with Bill Clark and always appreciate his thoughts from the front lines. Finally, the list is packed with professors I know and admire, or have read their work and am looking forward to meeting. 

More information about the conference is available here.

If you’ve been slamming away on a writing deadline then perhaps you’ve missed the opportunity (like me) to dive into the recent Chancery Court of Delaware Dell appraisal rights opinion (downloadable here).  Have no fear, your summary is here.

Vice Chancellor Laster valued Dell’s common stock at $17.62 per share, reflecting a 28% premium above the $13.75 merger price that was paid to Dell shareholders in October 2014 in a going private transaction lead by company-founder Michael Dell. Dell’s going private transaction was opposed by Carl Icahn and this juicy, contentious transaction has its own required reading list.  When conceding defeat, Carl Icahn sent the following letter to Dell Shareholders:

New York, New York, September 9, 2013 

Dear Fellow Dell Inc. Stockholders:

I continue to believe that the price being paid by Michael Dell/Silver Lake to purchase our company greatly undervalues it, among other things, because:

1. Dell is paying a price approximately 70% below its ten-year high of $42.38; and

2. The bid freezes stockholders out of any possibility of realizing Dell’s great potential.

Fast forward nearly 3 years later and it seems Vice Chancellor Laster agrees.  VC Laster reached his undervaluation decision despite no finding of significant…

A former law student of mine who practices in Delaware just alerted me to this Delaware Online article. 

The article describes the proposed bill as follows:

House Bill 371 would restrict the number of corporate shareholders who can petition the court for a stock appraisal to only those who own $1 million or more of a company’s stock or 1 percent of the outstanding shares, depending on which is less. Currently, any shareholder can ask the court to appraise their shares. Those motions are typically filed when a company is the target of an all-cash acquisition and the shareholder wants to ensure the buyer is paying a fair price for the stock. (emphasis added)

Corporate governance expert Charles Elson is quoted as saying:

. . . he understands the argument on both sides. “Anytime you attempt to restrict the rights of a smaller shareholder, it is going to be controversial whether or not the approach is warranted”

The article cites co-authored work by my Nashville neighbor, Randall Thomas (Vanderbilt Law):

A study published earlier this month by four noted corporate law professors, including Wei Jang of Columbia Business School and Randall S. Thomas of Vanderbilt Law School, found that hedge funds have

…

In follow up to my post yesterday, my trusted and valued co-blogger Joan Heminway asked a good question (as usual) based one of my comments.  My response became long enough that I thought it warranted a follow-up post (and it needed formatting).  Joan commented: 

you say: “there should be no problem if, for example, Delaware corporate law did not allow a for-profit entity to exercise religion for the sole sake of religion. I think that is the case right now: that’s not a proper corporate purpose under my read of existing law.” Are you implying that a corporate purpose of that kind for a for-profit corporation organized in Delaware would be unlawful? Can you explain?

My response: I am suggesting exactly that, though I concede one might need a complaining shareholder first. My read of eBay, and Chief Justice Strine’s musing on the subject, suggest that an entity that is run for purposes of religion (not shareholder wealth maximization) first and foremost, is an improper use of the Delaware corporate form. (“I simply indicate that the corporate law requires directors, as a matter of their duty of loyalty, to pursue a good faith strategy to maximize profits for…

There are those I-need-to-pinch-myself moments in life that come along every once in a while.  I was lucky enough to have one last week.  I was invited to attend a conference and comment on two interesting draft papers written by two law faculty colleagues whose work I have long admired and who are lovely people.  And the location was Miami Beach.  Does it get any better than that for a law professor who likes the beach?  I think not.

The event was the annual conference for the Institute for Law and Economic Policy (ILEP).  The conference theme was “Vindicating Virtuous Claims.”  The papers will be published in the Duke Law Journal, which co-sponsored the program. 

I will save details on the papers for later (when the papers are finalized).  But I will briefly describe each here.  The first paper on which I commented, written by Rutheford B (“Biff”) Campbell (University of Kentucky College of Law), argues for federal preemption of state securities regulation governing the offer and sale of securities, since federal preemption would be more efficient.  The second paper, written by James D. (“Jim”) Cox (Duke University School of Law, who was honored at the event and received the most amazing tribute from his Dean, David Levi, at…

In my Energy Business: Law & Strategy course, I use Larry A. DiMatteo’s article, Strategic Contracting: Contract Law as a Source of Competitive Advantage, 47 Am. Bus. L.J. 727 (2010).  I have been using the article in the class since 2012 (this is the third time I have taught it), and I think it does a great job of providing a theoretical backdrop for practical application.  I teach the article in combination with a one-sided proposed Memorandum of Understanding to help students think about the contracting process and and the long-term implications of what might seem like a small-scale negotiation. I highly recommend the piece.  

In reading the article this time around, though, I was struck by how differently the piece treats limited liability companies (LLCs) and corporations and the way concerns about opportunistic behavior are raised in the context of the latter.   In one portion of the article, DiMatteo notes: 

Corporate strategy that fails to take account of the strategic use of law is likely to waste opportunities for competitive advantages. A corporate legal strategy can be used to gain competitive advantages both internally and externally.

I wholeheartedly agree, and this is part of the reason I teach my course.  Although I don’t think…

Strine

I haven’t seen his name on any of the short lists to replace Justice Scalia, but I would love to see the current Chief Justice of the Delaware Supreme Court, Leo Strine, get the nomination.

The benefits of nominating Chief Justice Strine include:

  • Promise of an entertaining nomination process. With all that he has said and written, there would be a lot of fodder, but he would be sure to hold his own. 
  • A nominee whose wit and writing style could rival Justice Scalia’s.
  • Diversity. Chief Justice Strine went to Penn for law school, not Harvard or Yale. (Granted, he does teach at Harvard).
  • Serious corporate law knowledge, and, at least on this blog, we know the Supreme Court of the United States needs help in this area.
  • Extremely bright, curious, and widely read. He likely has knowledge of and an opinion on most areas of law, well outside of just corporate law.

Anyway, I am sure President Obama will go with a more conventional pick, but I do hope to see a Supreme Court justice with corporate law expertise on the court eventually.

Bernard Sharfman, in his new article on SSRN, The Tension Between hedge Fund Activism and Corporate Law, argues that hedge fund activism for control of a publicly traded corporation is a positive corrective measure in corporate governance.  After asserting that hedge fund activism should be permitted, Sharfman, argues, controversially, that courts should depart from traditional deference to a corporate board’s decision making authority under the business judgment rule.  Alternatively, Sharfman urges courts to adopt a heightened standard of scrutiny when reviewing defensive board actions against hedge funds.

[Hedge Fund Activism] has a role to play as a corrective mechanism in corporate governance and it is up to the courts to find a way to make sure it continues to have a significant impact despite the courts’ inclination to yield to Board authority. In practice, this means that when the plaintiff is an activist hedge fund and the standard of review is the Unocal test because issues of control are present, a less permissive approach needs to be applied, requiring the courts to exercise restraint in interpreting the actions of activist hedge funds as an attempt to gain control. 

If there are no issues of control, then Board independence and reasonable investigation still needs to be the focus. That is, before the business

…

This week, Delaware Governor Jack Markell nominated Joseph R. Slights, III for the position held by retiring Vice Chancellor John Noble on the Delaware Court of Chancery.

Judge Slights previously served a 12-year term on the Delaware Superior Court. Immediately prior to his nomination, Judge Slights was a commercial litigation partner at the firm of Morris, James, Hitchens & Williams LLP.

Once Vice Chancellor Noble retires, Vice Chancellor Laster will become the judge with the most experience serving on the Delaware Court of Chancery. Vice Chancellor Laster was sworn into his position in October of 2009. It has been a quick 6+ years; it seems like that was just yesterday.

I outsource the details of Joseph Slights’ nomination below: