Unprofitable Mergers: Toward a Market-Based Legal Response

The reams of commentary on corporate mergers, acquisitions, and tender offers have focused largely on protection of shareholders of acquired (or target) companies from both the depredations of acquiring (or raider) companies and the cupidity of their own managements in either negotiating the terms or obstructing the accomplishment of transactions. Virtually no attention has been paid to the plight of shareholders of acquiring companies devastated by unwise acquisitions. This oversight is surprising: some acquisitions have been spectacular disasters, destroying hundreds of millions of dollars in the value of the acquiring company\u27s stock.1 Nor are these isolated cases: on average, acquisitions produce little or no gain for acquiring companies.2 A few commentators have recommended eradicating unprofitable acquisitions by requiring approval of the acquirer\u27s shareholders, altering the accounting treatment of mergers, or enjoining conglomerate mergers. Close analysis shows that these proposals would not solve the problem. This Article proposes instead a response based on the most reliable index of the profitability of an acquisition-the reaction of the acquirer\u27s stock price

The George A. Leet Business Law Symposium: The Role of Lawyers in Strategic Alliances - Introduction

Introducation to The George A. Leet Business Law Symposium: The Role of Lawyers in Strategic Alliances, Cleveland, Ohio

The Revolution in Corporate Governance, The Monitoring Board, and The Director\u27s Duty of Care

The theory of corporate governance underwent a revolution in the 1970\u27s. Theorists finally abandoned the myth that a public corporation\u27 is managed by its board of directors, and constructed a new model under which the corporation is managed by its executive officers, and the board, dominated by outside directors, monitors management\u27s performance. This new monitoring model has gained wide acceptance among commentators, and several of its elements have been adopted by many public corporations. Even those commentators who do not enthusiastically embrace the entire monitoring model tend to agree that monitoring management is a significant board function. But expositions of the monitoring model to date have been rudimentary. Its proponents have not suggested what forces will prompt corporations to adopt the model and thereby move it from theory to widely accepted reality. Nor have they described in detail what the board\u27s duties would be under the model, much less how these duties would be discharged. Until these problems are satisfactorily resolved, the potential of the monitoring model for improving corporate governance must be considered an open question. This Article grapples with these problems. In exploring the possible mechanisms for enforcing adoption of and performance under the monitoring model, the Article concludes that market forces alone will not suffice and that legislative solutions face insuperable political and theoretical obstacles.6 Accordingly, special attention is given to the duty of care of directors and officers as a possible enforcement mechanism. The duty of care has been a problem child of corporate law. Its command that directors and officers perform their duties with reasonable prudence appears on its face to provide a significant constraint on directors and officers, especially in an age when control has become divorced from ownership in public corporations.7 In practice, however, the duty of care has proved almost totally ineffectual.8 A key question concerning the monitoring model, then, is what will be the content of the duty of care given the new role of the director that the model envisions and, more particularly, whether the duty of care can be revived and used as a tool for enforcing the monitoring model

Proxy Regulation in Search of a Purpose

Changing conditions often force us to rethink the role of a law. Professor Ryan\u27s scholarly article, Rule 14a-8, Institutional Shareholder Proposals, and Corporate Democracy,underscores this need. His article is useful for both its successes and its failures. Its principal failure is its inability to identify a general justification for the rule. This is helpful; the failure of an intelligent and deter- mined advocate to find a persuasive defense of the rule confirms that no defense is possible. The article succeeds principally in showing how institutional investors have recently used the rule in ways that put the rule in a new light. The new developments demand a response from the rule\u27s critics. This reply argues that Professor Ryan is right in concluding that the new developments justify a role for the rule, but that this role must be more narrowly defined than it has been by Professor Ryan

Dual Class Capitalization: A Reply to Professor Seligman

Professor Joel Seligman\u27s article, Equal Protection in Share- holder Voting Rights: The One Common Share, One Vote Contro- versy,\u27 is an impressive accomplishment in many respects. It confirms his status as premier historian of our securities laws and markets.2 It also provides a powerful analysis of, and the first se- rious argument against, dual class capitalization, and proposes a thoughtful solution to the problems it raises. Despite these formi- dable assets, some of Professor Seligman\u27s conclusions are debata- ble. First, Professor Seligman argues that the Securities and Exchange Commission (SEC) can impose on the National Associa- tion of Securities Dealers (NASD) and the stock exchanges (col- lectively, the securities markets ) rules forbidding dual class common stock among companies listed for trading.3 Further, Pro- fessor Seligman argues that such rules would be wise.4 This Reply argues that both his positions are ill-founded. Part I analyzes the SEC\u27s power to forbid dual class capitalization. Part II discusses the concept of efficiency in corporate law and proce- dural safeguards to limit dual class capitalization to situations in which it is efficient. It further provides a theoretical discussion of the efficiency of dual class capitalization. Part III advances a counterproposal to Professor Seligman\u27s position, as well as that of Professor Daniel Fischel. Although Professor Seligman is right that dual class capitalization creates dangers, new legislation can allow such capitalization, yet protect against these dangers. Un- like his proposed prohibition, this new legislation should permit dual class stock if it will not injure public shareholders

Limited Liability in Environmental Law

The social importance and immense costs of pollution make environmental law an ideal arena for reconsidering theories of limited liability for tort. This article examines the question in the context of the Comprehensive Environmental Response, Compensation, and Liability Act (CER-CLA).1 Part I reviews the text and legislative history of the Act. Part II analyzes the CERCLA case law on the liability of controlling persons, especially those involving parent corporations. Part III discusses the general theory of limited liability and its exceptions. Part IV applies this general theory to CERCLA and finds that its special features call for distinctive approaches. Part V advocates an approach to controlling person liability that furthers the purposes of the Act without impairing other important policies

The Power of Directors to Terminate Shareholder Litigation: The Death of the Derivative Suit?

This article will analyze the problems raised by the board\u27s attempt to terminate shareholder suits and will advance proposals to deal with those problems

Toward Unifying Ownership and Control in the Public Corporation

In 1932, Adolf Berle and Gardiner Means published the seminal book, The Modern Corporation and Private Property. This work set forth the thesis that corporate law\u27s central dilemma has been the separation of ownership and control in publicly held corporations. Over the years, the Berle-Means thesis has been tossed aside by critics who argue that economic forces compel managers to act as if the shareholders were in control and by those who welcome the idea that managers are able to exercise their more enlightened business acumen. On the other hand, those who share concerns over the separation of ownership and control have had little luck in getting anything done to bridge this gap. In this Article, Professor Dent seeks to rejuvenate the debate over the separation of ownership and control. To this end, he proposes a theoretically simple, yet realistic and quite workable solution to this dilemma: take away managements\u27 control of the proxy voting system and give control to the publicly held corporations\u27 largest shareholders