Understanding the (Ir)relevance of Shareholder Votes on M&A Deals
James D. Cox, Tomas J. Mondino & Randall S. Thomas
Has corporate law and its bundles of fiduciary obligations become irrelevant? Over the last thirty years, the American public corporation has undergone a profound metamorphosis, transforming itself from a business with dispersed ownership to one whose ownership is highly concentrated in the hands of sophisticated financial institutions. Corporate law has not been immutable to these changes. Current doctrine now accords to a shareholder vote two effects: first, the vote satisfies a statutory mandate that shareholders approve a deal, and second and significantly, the vote insulates the transaction and its actors from any claim of misconduct incident to the approved transaction.
This Article takes issue with the courts and commentators who have so elevated the impact of shareholder approval to insulate misconduct. We develop why it is not reasonable to believe that the shareholders’ competencies extend to adjudging managerial misconduct, why that conclusion is inconsistent with other modern corporate law developments, and why such shareholder ratification is likely both coerced and poorly considered. We also point out that the position of courts and commentators who pronounce the death of corporate fiduciary law is deeply qualified by the deep conflicts of interest institutional investors face when voting as well as the very real threat that today’s ecology that supports shareholder activism is likely to change so that the voice of the discontented shareholder will be at least more muted in the future.
Finally, we provide empirical support that there is a very large thumb on the scale that pushes all deals toward approval, regardless of any allegations of wrongdoing. We observe substantial ownership changes at target corporations, sometimes as high as 40 to 50 percent of their stock, from long-term investors to hedge funds upon the announcement of a deal and before the consummation of the transaction with a shareholder vote. This change reflects the merger arbitrageurs’ actions. We further show that this change in ownership has a positive and statistically significant impact on the likelihood of merger deals garnering the required shareholder approval.
We conclude that the Delaware courts need to rethink their obsession with the shareholder vote, renounce the current doctrinal trends that are taking them in the wrong direction, and return to their historic role of evaluating whether directors have satisfied their fiduciary duties in M&A transactions.
Thanks to the proliferation of internet-connected devices that constitute the “Internet of Things” (“IoT”), companies can now remotely and automatically alter or deactivate household items. In addition to empowering industry at the expense of individuals, this remote interference can cause property damage and bodily injury when an otherwise operational car, alarm system, or implanted medical device abruptly ceases to function.
Even as the potential for harm escalates, contract and tort law work in tandem to shield IoT companies from liability. Exculpatory clauses limit civil remedies, IoT devices’ bundled object/service nature thwarts implied warranty claims, and contractual notice of remote interference precludes common law tort suits. Meanwhile, absent a better understanding of how IoT-enabled injuries operate and propagate, judges are likely to apply products liability and negligence standards narrowly, in ways that curtail corporate liability.
But this is hardly the first time a new technology has altered social and power relations between industries and individuals, creating a potential liability inflection point. As before, we must decide what to incentivize and who to protect, with an awareness that the choices we make now will shape future assumptions about IoT companies’ obligations and consumer rights. Accordingly, this Article proposes reforms to contract and tort law to expand corporate liability and minimize foreseeable consumer injury.
Politicians are increasingly employing dog whistles in campaign speech to appeal to a divided electorate. Simultaneously, states continue to pass legislation restricting minority access to the ballot box. Litigants attempting to challenge new vote denial laws are left with only one tool—Section 3 of the Voting Rights Act—which requires the difficult task of demonstrating that the jurisdiction violated the Fourteenth Amendment. Despite the frequency of dog whistles, courts have declined to use campaign rhetoric as evidence of discriminatory intent in Fourteenth Amendment challenges.
This Note argues that, to ease the nearly insurmountable burden of proving discriminatory intent in voting rights challenges, courts should consider dog whistles in campaign speech as evidence of discriminatory intent. It is particularly important for voters to prove discriminatory intent in voting rights cases because they face the unique difficulty of distinguishing between closely aligned racial-discrimination motivations and political-party motivations; Section 3 of the VRA allows for preclearance systems once discriminatory intent is proven; and broader, less tailored remedies become available when litigants can successfully prove intent.
The right to vote is a right “preservative of [all] other basic civil and political rights.” Considering dog whistles as evidence of discriminatory intent gives litigants a necessary tool to protect this fundamental right.
Modern technology and the internet have radically transformed the ways in which individuals interact and communicate. At the forefront of this digital-speech movement are social media sites like Twitter and Facebook, which the Supreme Court has identified as among “the most important places . . . for the exchange of views” in our modern culture. But these platforms are not just for private citizens; government officials also use social media sites as a way to connect with their constituents. However, First Amendment questions have arisen as these officials have sought to regulate their pages by “blocking” individual users. To date, three cases have held that individual government officials at several levels of federal, state, and municipal government violated the “public forum doctrine” by blocking individuals from their social media pages.
This Note posits that the public forum analyses employed in these cases fail to address a fundamental question, however: When is it appropriate to apply the public forum doctrine to individual government officials’ conduct? Through a survey of applicable public forum precedent, this Note suggests an amendment to the doctrine that effectively establishes when individual government officials act with the requisite authority such that they can be considered government entities capable of creating a public forum.
In Sell v. United States , the Supreme Court announced a constitutional standard permitting involuntary medication of mentally ill criminal defendants to render them competent to stand trial. Lower federal courts have struggled to apply the Court’s balancing test, reading the same Sell language to impose different requirements.
While much ink has been spilled debating whether the Sell standard is sufficiently rights-protective, less attention has been devoted to the state court implementations of Sell . But because many more criminal prosecutions take place in state court than in federal court, it stands to reason that significantly more Sell requests should arise in state court. This Note provides the first comprehensive review of Sell in the states.
That review reveals that state courts have largely been forced to choose among conflicting federal approaches to Sell . Therefore, fixing Sell in the states requires assessing those interpretations to determine which one state courts should follow—namely, the approach most faithful to the balance struck by the Sell Court. After making that assessment, this Note proceeds to consider state-specific sources of law as alternative paths to Sell reform.
State constitutional law has yet to play a meaningful role in Sell cases and is unlikely to do so in the future. Instead, state legislatures can and should act to give structure to the Sell regime in their states, give guidance to the state courts, and, if desired, create additional protections for defendants. Providing such a comprehensive regime would free state courts from what is essentially a policy decision—picking between the various Sell approaches and determining how Sell should be applied in the states.