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Tuesday, May 13, 2014

The Timing of Corporate Law Developments: Two Questions

I thank Christopher for his thorough reply to my first post. Rather than extend that thread, I want to ask two questions concerning the timing of the corporate law developments he discusses.

The first question reveals my massive ignorance of the history of corporate law even in Delaware, much less the other countries the book analyzes. The book does a very good job of tying the timing of developments in takeover law to developments in welfare policy. However, takeover law rules are not the only set of rules Bruner analyzes as differing between the US and the UK. Other rules include the ability of shareholders alone to amend corporate charters, to call special meetings, to remove directors without cause, and to compel board action. Unless I missed it (quite possible), Bruner does not discuss when these rules developed. Were they at around the same time as the takeover rules? If so, my question poses no challenge to his story, it is just a matter of clarification.

However, if those core voting rules were adopted much earlier, there is a more substantive issue. Do those rules then pre-date the divergence in welfare policies across the four countries studied? If so, that would do real harm to the causal story Bruner is telling. I would have thought that at least some of these rules are considerably older than the takeover rules, but I could easily be wrong about that.

My second question concerns the adoption of the antitakeover legal regime in the US. Bruner tells the story well, and I agree with his characterization of those rules as ambivalent on the shareholder/stakeholder primacy divide.  My question concerns whether Bruner has really nailed the causal relation to a concern for employees--an alternative story is that the rules reflect a power grab by managers.  Andrew Gold's post raises this issue for the legislative history of constituency statutes.  It's a good question, although I'm inclined to believe that a concern for employees played at least some role in the politics underlying those statutes (even if that concern was just a figleaf for managerial rent-seeking, it may have been a politically valuable figleaf).

But the tie betwen employee interests and Delaware is less clear to me. I would like to see some plausible political account here as to how employee interests helped shape Delaware law. I know of no evidence of a direct role within Delaware politics, and a direct role seems unlikely. In setting corporate law, Delaware cares above all about attracting and retaining corporations. The politics are very different from those in other states, which are mainly concerned with corporations based at home, so that the interests of their employees are more salient.

For my second question, I have a suggested answer: Mark Roe's theory of Delaware's Politics. Although Delaware is the leader in the race for corporate charters by a mile (to the extent that many question whether there is any race at all), it is constrained by the threat of federal preemption. If Delaware gets too out of line with what the federal government wants, the feds could step in and set the rules they prefer.  And the federal government is affected by a wider range of constituencies, including employees. That may well be the missing link that Bruner needs to explain the dynamics of Delaware corporate law in the shadow of the welfare state.

Posted by Brett McDonnell on May 13, 2014 at 04:34 PM | Permalink


Brett, thanks for your two posts. very interesting comments and questions.

Two things. First, on the history point, I agree with you. It would be great to know exactly when different norms in the doctrine developed. In places, the book moves fluidly--perhaps too fluidly?--back and forth between corporate governance doctrine in takeover situations and outside it.

As to your second question, I like your idea of relying on Mark Roe's work. But isn't it also possible that the influence of employee/labor interests on Delaware law is even more subtle? Or maybe there's correlation, but no causation? I am grasping here, and I will await Chris's response.

[I note that Chris points (pp. 172-73) to legislative and judicial reactions to the hostile takeover wave in the 1980s as evidence of the effect of employee concerns on Delaware law and cites to "constituencies" language in Unocal and compares it to the Revlon line of cases. He also cites to several law review articles. While none of these evidences a direct connection, at least there is evidence (albeit weak) some of the decision makers (those in the judiciary) are thinking about employee (and greater societal) welfare in shaping legal rules . . . .]

Posted by: Joan Heminway | May 13, 2014 5:31:46 PM

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