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The Corporate Contract in Changing TimesIs the Law Keeping Up?$
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Steven Davidoff Solomon and Randall Stuart Thomas

Print publication date: 2019

Print ISBN-13: 9780226599403

Published to Chicago Scholarship Online: September 2019

DOI: 10.7208/chicago/9780226599540.001.0001

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The Rise and Fall of Delaware’s Takeover Standards

The Rise and Fall of Delaware’s Takeover Standards

Chapter:
(p.29) Chapter Two The Rise and Fall of Delaware’s Takeover Standards
Source:
The Corporate Contract in Changing Times
Author(s):

Steven Davidoff Solomon

Randall S. Thomas

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226599540.003.0002

In this chapter for the book, we attempt to explain the rise and fall of jurisprudential takeover standards in Delaware. We theorize that these standards were created by Delaware courts in the mid-1980s to rectify a perceived failure in the corporate governance system, principally the apparent failure of directors to act responsibly in the corporate governance eco-system. These new standards successfully channeled takeovers into certain preferred forms, but also helped ameliorate the problematic practices of that period. These new standards collectively had another effect: encouraging the rise of private enforcement activities, initially by the raiders themselves, but once hostile transactions became a less significant force, through expanded shareholder litigation. In this new environment, private litigation became increasingly unnecessary, a fact which became quite apparent with the rise in litigation rates to 96% of all takeovers. At the same time, the rise of institutional investors, coordinating bodies such as proxy solicitors, hedge fund activism and corporate governance movements, as well as the expansion of federal securities law into areas like executive compensation and board independence/monitoring, occurred. The consequence was a largely justifiable relaxation of these standards.

Keywords:   Delaware, Takeovers, Unocal, Blasius, Weinberger, Fiduciary Duties

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