In Unocal at 20: Director Primacy in Corporate Takeovers, Delaware Journal of Corporate Law, Vol. 31, No. 3, pp. 769-862, 2006, available at SSRN: http://ssrn.com/abstract=946016, I argued that:
In Unocal Corp. v. Mesa Petroleum Co., the Delaware Supreme Court made clear that the board of directors of a target corporation is not a passive instrumentality in the face of an unsolicited tender offer or other takeover bid. To the contrary, so long as the target board's actions are neither coercive nor preclusive, the target's board remains the defender of the metaphorical medieval corporate bastion and the protector of the corporation's shareholders.
Unocal is almost universally condemned in the academic corporate law literature. Building on his director primacy model of corporate governance and law, however, Bainbridge offers a defense of Unocal in this article. Bainbridge argues that Unocal strikes an appropriate balance between two competing but equally legitimate goals of corporate law: on the one hand, because the power to review differs only in degree and not in kind from the power to decide, the discretionary authority of the board of directors must be insulated from shareholder and judicial oversight in order to promote efficient corporate decision making; on the other hand, because directors are obligated to maximize shareholder wealth, there must be mechanisms to ensure director accountability. The Unocal framework provides courts with a mechanism for filtering out cases in which directors have abused their authority from those in which directors have not.
A key part of that article is devoted to rebutting the arguments by those who would deny target boards of directors their usual discretionary powers in the takeover context. And now we have a case in point:
Airgas is a leading distributor of industrial, medical and specialty gases in the United States, selling canisters of oxygen and other gases to more than a million customers across the country. The deal to sell the company was an eye-opener for corporate America. ...
Wall Street law firms now hold up Airgas as one of the best arguments for management’s right to defend its company. Business schools around the country are seeking to turn the tale into a case study. ...
Despite the long odds, Mr. McCausland prevailed, by winning on appeal at the Delaware Supreme Court. The case preserved the ability of companies to defend themselves against hostile takeovers, without input from shareholders.
Despite the mewling and howling from the takeover industry, activist hedge and pension funds, and their academic allies along the Acela corridor, courts have given boards the power to determine what is in the best interests of the company ... if only the board has the stomach for it.
