DealLawyers.com Blog

This new article suggests that Revlon, Unocal & the other Delaware takeover standards we’ve all focused on for more than a generation are in decline, and that there’s good reason for that – the growing clout of institutional investors, investor activism & the rise of the corporate governance movement. Here’s a summary of the argument:

These standards were created by Delaware courts in the mid-1980s to rectify a perceived failure in the corporate governance system, principally the apparent failure of directors to act responsibly. These new standards encouraged the rise of private enforcement activities, initially by the raiders themselves, but once hostile transactions became a less significant force, through expanded shareholder litigation.

In this new environment, private litigation became increasingly unnecessary – a fact which became quite apparent with the rise in litigation rates to 96% of all takeovers. At the same time, the rise of institutional investors, coordinating bodies such as proxy solicitors, hedge fund activism & corporate governance movements, as well as the expansion of federal securities law into areas like executive compensation & board independence/monitoring, occurred. The consequence was a largely justifiable relaxation of these standards.

– John Jenkins