Can Delaware Be Dethroned?

Delaware is the state of incorporation for almost two-thirds of the Fortune 500 companies, as well as more than half of all companies listed on the New York Stock Exchange, NASDAQ, and other major stock exchanges. This gives Delaware a seemingly unchallengeable position as the dominant producer of US corporate law. In recent years, however, some observers have suggested that Delaware’s competitive position is eroding. Other states have long tried to chip away at Delaware’s position, and recent Delaware legal developments may have strengthened the case for incorporating outside Delaware. More important, however, the federal government increasingly is preempting corporate governance law. The contributors to this volume are leading academics and practitioners with decades of experience in Delaware corporate law. They bring together a variety of perspectives that collectively provide the reader with a broad understanding of how Delaware achieved its dominant position and the threats it faces.

Professors Weigh In On DFC Global Appeal

〔2017年1月1日追記〕

A categorical/presumptive rule is bad law. The mandatory language of Section 262 of the Delaware General Corporate Law (DGCL) directs the Court of Chancery to “take into account all relevant factors” in determining fair value. As explained below, the appraisal remedy is separate and distinct from the common law governing fiduciary duties and cleansing conflicts of interest. A merger-price presumption would also disregard the principles enunciated in Weinberger v. UOP, 457 A.2d 701 (Del. 1983), directing the Court of Chancery to value companies using methodologies recognized and applied by professionals in the field, including (but not limited to) discounted cash flow (DCF) analysis. Instead, a broadly hewn “Merger Price” rule would effectively nullify the appraisal remedy, undermining the statutory mandate of \S~262.

A categorical/presumptive rule is also bad economics: To be sure, the price resulting from an arm’s-length process may accurately reflect fair value. But not always. In numerous seemingly benign cases, a facially disinterested process can still render a price falling short of fair value. In such situations, fair compensation requires an appraisal rule that is independent of the merger price. In fact, even the credible threat of an appraisal untethered to the merger price increases the chance that a market process will more accurately reflect fair value, as both bidders and target boards internalize the cost of approving a transaction at the lowest end of the range of fair values. As explained below, this ex ante benefit persists even if appraisals are prone to judicial error.

Finally, a categorical/presumptive rule is bad legal policy. Simply put, context matters: The evidentiary value of the deal price is a highly fact-sensitive question, ill-suited to a bright-line test. Any attempt at judicial line-drawing—preordaining circumstances where the transaction price must (or must not) be taken as conclusive—is doomed to be both over- and under-inclusive. The jurisprudential straightjacket urged by Appellant undermines the judicial discretion of Delaware’s sophisticated judiciary—a key factor in Delaware’s corporate law dominance.

〔2017年1月9日追記〕

via Lowenstein Sandler, Lowenstein Sandler

Michael P. Dooley (1939–2014)

Michael P. Dooley教授は,University of Virginia Law Schoolの会社法教授であり,また,長らくModel Business Corporation ActのOfficial Reporterでした。

Smith教授は,1989年に書かれた次の文章を引用して,Dooley教授を偲んでいます。

The power to hold to account is the power to interfere and, ultimately, the power to decide. If stockholders are given too easy access to courts, the effect is to transfer decisionmaking power from the board to the stockholders or, more realistically, to one or few stockholders whose interests may not coincide with those of the larger body of stockholders. By limiting judicial review of board decisions, the business judgment rule preserves the statutory scheme of centralizing authority in the board of directors. In doing so, it also preserves the value of centralized decisionmaking for the stockholders and protects them against unwarranted interference in that process by one of their number. Although it is customary to think of the business judgment rule as protecting directors from stockholders, it ultimately serves the more important function of protecting stockholders from themselves.1

RIP.

〔2016年7月8日追記〕

via Stephen M. Bainbridge, Henry Manne, Gordon Smith

  1. Michael P. Dooley & E. Norman Veasey, The Role of the Board in Derivative Litigation: Delaware Law and the Current ALI Proposals Compared, 44 Bus. Law. 503, 522 (1989). []