The Great Takeover Debate: A Meditation on Bridging the Conceptual Divide

Abstract

The past two decades have witnessed a vigorous continuation of the long-standing debate about the proper role of the corporation in our society. Recently, that debate has centered on the question of who -- the directors or the stockholders -- should have the ultimate power to decide whether the corporation should be sold to a bidder that offers to buy all the corporation's shares at a substantial premium above the current stock market price. The contestants in this debate have been unable to reach any middle ground. That impasse is due in part to ideological differences between the two schools, but it is also due in part to a general satisfaction with the results achieved by the current state of Delaware corporate fiduciary law, which incorporates elements of, and balances, both positions. To relocate the debate to a different and perhaps more fruitful path, the authors suggest an approach that might provide a middle ground between the these two schools: corporate election reform. This Article raises, for discussion purposes only, the issue of whether it is possible to reform the director election process to increase director accountability to the stockholders while at the same time creating a cadre of directors having considerable flexibility to respond to takeover offers in a manner appropriately sensitive to shareholder interests. To stimulate more productive discussion about the nature of the corporation and the role of corporate law, the authors propose -- without embracing -- a reform that they suggest might have this effect.