M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, March 8, 2012

Is corporate law serious? Maybe ... maybe not.

David Weidner of the WSJ has a good post today asking the question, "Is Leo Strine Serious?"  Of course, I'll admit to being a fan of Leo Strine's wit.  If you read a lot of case law, which is the punishment for being a law professor, it's a wonderful thing to occasionally read an opinion where the writer's personality comes shining through.  That said, Weidner is expressing a frustration that's bigger than simply Chancellor Strine and El Paso.  The frustration is with the corporate law itself.  Reuter's Allison Frankel puts it this way:

But is this really how we want the court system to work? Strine said he was afraid to enjoin the shareholder vote because Kinder Morgan could then walk away from the proposed acquisition, costing El Paso stockholders billions in lost equity. Does that mean the Delaware courts are unwilling to act against any single-bidder deal, no matter how tainted the process that produced it?

That's a good question. I guess it depends on how smart - or independent - we think shareholders are. If in cases like this one where there is a single bidder offering a premium, do we think shareholders are smart enough to read Strine's opinion and decide for themselves that it's a bad deal and reject it?  Remember, the arguments and opinion are all before the shareholder vote.  If I were an El Paso shareholder, I'd read the opinion and vote "no".  Then, I'd try to find a way to eject Foshee from the board. But I'm not an El Paso shareholder, at least not directly.    

but, maybe we think that shareholders are simply fools.  Unthinking types who couldn't be bothered to vote "no" - because they are rationally apathetic or because they aren't paying attention.  That's possible, too. In which case, shareholders need Chancellor Strine to stand up on their behalf and rule - this goes too far. Maybe.

But, if that's what shareholders are really like - and who's to say they aren't - then why do we spend so much time arguing for increased shareholder access to proxies, majority voting, and a host of other good governance measures that put the shareholders at the center of events? If shareholders are too checked-out to vote down the El Paso transaction following Strine's opinion, why do we think they'll be any better at selecting an attentive board?  

I feel Strine's pain.  Really, I do.  It's a no win.  He does his best to shame the executives (Prof Bainbridge on corporate shaming) and make it clear to shareholders that they should vote down the transaction, but without sticking his judicial nose too far in.  It's a balance that leaves no one all that happy, especially him.  



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