Professor Bainbridge...on law, politics, religion, culture & food

Pills, Proxies, and Notice: The Microsoft Bear Hug

Dealbook picked up an interesting wrinkle of Microsoft’s bear hug letter to yahoo’s board:

Microsoft states in its letter that:

Depending on the nature of your response, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal.

So, what is Microsoft really getting at? What is the “bear” here?

Yahoo has a shareholders rights plan, also known as a poison pill, with a 15 percent trigger. As a result, Microsoft cannot effectively acquire an interest in Yahoo above that threshold unless it obtains prior approval from Yahoo’s board.

But if the Yahoo board resists Microsoft’s offer, Microsoft can still pursue a hostile bid.

In the face of an unaccommodating board, the only effective option for Microsoft to force Yahoo’s directors to come to the negotiating table or to otherwise acquire Yahoo is a proxy contest.

Here, the timing of Microsoft’s letter is not random. Section 2.5 of Yahoo’s by-laws require that:

For proposals and nominations to be timely, a stockholder’s notice shall be received by the secretary at the principal executive offices of the Corporation in the case of the annual meeting not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting of stockholders.

Yahoo’s last annual meeting was on June 12, 2007. By my count, the notice date period therefore begins on Feb. 13, 2008, and ends March 14, 2008.

Yahoo’s by-laws and certificate of incorporation prohibit actions by written consent and special meetings.

As the article goes on to explain, a strategic buyer like Microsoft almost never goes hostile, let alone resorts to a proxy contest to oust an incumbent board so as to defang a poison pill.  It seems likely that Microsoft is simply posturing here..  On the other hand, given the number of times a Microsoft-Yahoo has been mooted without coming to fruition, Microsoft may be trying to send both Yahoo and the market a message that it is really serious this time.  Although, as I noted on my punditry blog, the strategic logic of this acquisition escapes me.

The Arid CSR Debate

A couple of weeks ago, The Economist magazine ran a special report on corporate social responsibility.  I finally got around to reading it today and am struck very forcefully by the aridity of the debate.  And I say this as someone who has killed more than his fair share of trees contributing to that debate.

Corporate conduct has negative externalities that the law fails to require firms to fully internalize.  Allowing managers to pursue decision-making norms other than shareholder wealth maximization increases agency costs.  Managers will simply side with the constituency whose interests most closely parallel their own and then use corporate social responsibility as camouflage for decisions that in fact are self-interested. Furthermore, as far as basic corporate philanthropy is concerned, managers mostly subsidize rich folks’ fun, such as operas and NPR. The business judgment rule nevertheless appropriately insulates such decisions from judicial review because concerns for protecting board of director authority outweigh accountability concerns with respect to most operational decisions.  Accordingly, corporate law only subjects “socially responsible” decisions to judicial review in the context of final period decisions, principally corporate takeovers.

We all know this, right?

We all also know that companies have embraced CSR, especially EU companies.  We also all know that the evidence for a positive link between corporate social responsibility and improved financial performance is weak, at best, and that many studies are seriously flawed because they were conducted by people or organizations with an ax to grind and a dog in the fight.  And even those studies that purport to find a positive relationship have been unable to establish causality.  As The Economist put it, we don’t know “whether profitable companies feel rich enough to splash out on CSR, or CSR brings profits.”

Frankly, I can’t remember the last time I read anything new about CSR (let alone said anything new).

“The words of the Preacher, the son of David, king in Jerusalem. ... The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun. Is there any thing whereof it may be said, See, this is new? it hath been already of old time, which was before us.”

Exam Length and Grade

My friend and UCLA law colleague Eugene Volokh reports:

Last semester, I for the first time recorded in my exam scoring spreadsheet the length of each answer. This let me figure out the correlation between the length and the grade. ... The correlation coefficient of the total score (which combined the essay score and the multiple choice score) and the essay word count was 0.60, which is huge as correlations go. So longer is better, by a lot, right? The correlation between the total score and the word count for exams longer than the median exam was basically zero.

... Still, it struck me as an interesting data point; and perhaps some students might be happy to know that, past a certain level, quantity and quality aren’t even correlated.

Still, it struck me that my friend Eugene has too much time on his hands.