Justice Jackson in the Boardroom: A Proposal for Judicial Treatment of Shareholder-Approved Poison Pills

Abstract

Unisuper Ltd. v. News Corp. held that Delaware law did not bar shareholders and their directors from contracting to limit directors’ power to adopt a poison pill. The Unisuper decision marked the latest development in a decade-long debate over whether Delaware law allows shareholders to limit a board’s discretion to set takeover defense strategy. Shareholder rights proponents claim that the decision supports their view that shareholder proposed bylaws can place limitations on board powers. Alternately, the corporate defense bar argues for a narrower reading of Unisuper in light of Delaware Supreme Court precedent. Whether Delaware will adopt broad formulations outside of a breach of contract setting remains to be seen, but the case, and the circumstances surrounding it, present interesting legal and practical implications for the ongoing debate. Legally, shareholders and directors may contract with each other to allocate corporate power, and as a practical matter, large institutional investors are increasingly gaining the power to force directors to the negotiating table. This paper proposes that when boards and shareholders act in concert to formulate corporate takeover defense policy, the board’s power is at its maximum. Using the framework provided by existing corporate takeover jurisprudence, Delaware courts should give broad deference to corporations adopting and using shareholder-approved poison pills. In doing so, Delaware courts can give meaning to the shareholder vote, encourage dialogue between shareholders and directors over takeover policy, and retain the predictability and thoroughness of the takeover common law as it has developed over the past twenty-five years.