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

Omnicare v. NCS Healthcare: The § 251 issue

In an earlier post, I discussed the Delaware supreme court's puzzling decision in Omnicare v. NCS Healthcare, 818 A.2d 914 (Del. 2003). We noted therein that the NCS-Genesis merger agreement required NCS’ board to submit the Genesis deal to a shareholder vote even if the board withdrew its recommendation that the shareholders approve the deal. This is known as a § 251 clause. As with so much else in the Omnicare decision, the majority's treatment of § 251 is quite troubling.

New paper on Catholic social teaching and the corporation

My essay Catholic Social Thought and the Corporation can now be downloaded from SSRN. Here's the abstract:

This brief essay explores Catholic social thought on corporate governance. Human dignity and freedom are central principles of Catholic social thought. This essay argues that preserving the economic freedom of corporations to pursue wealth is an essential part of effective means for achieving human freedom. To the extent prudential judgments about corporate regulation are required, the Church and civil society should strive towards a nuanced balancing of freedom and virtue.

Henry Manne on academic corporate law

Law and economics superstar Henry Manne has a fabulous essay in the latest issue of the Emory Law Journal, A Free Market Model of a Large Corporation System, in which he makes a telling observation about recent corporate law scholarship:

Scholars have for too long been led by events into accepting the status quo and building on it. As the total picture gets more and more complicated and messier and messier, it is much easier to do limited "event studies" or other partial equilibrium analyses. This necessarily results in a loss of a sense of history and a lack of a proper cynicism about the beneficence or legitimacy of previous government regulation.

Academic careers can be ruined by too much departure from the conventions of the moment, even though the cumulative effect of this is to limit any chance for large-scale rethinking of a whole field. What is needed now is a larger debate on the real costs and benefits of market and regulatory alternatives to corporate governance. This could in time result in a very different accepted wisdom about large corporations.

52 Emory L.J. 1381, 1400 (sub. req'd). [Ed.: Thunderous applause in the hall.]

Omnicare v. NCS Healthcare: The precommitment issues

In class yesterday, we tackled the Delaware supreme court's decision in Omnicare v. NCS Healthcare, 818 A.2d 914 (Del. 2003), in which the Delaware supreme court held that an exclusive merger agreement -- such as a no shop or best efforts clause -- must include a fiduciary out, at least where the agreement presents target shareholders with a “fait accompli.” No Delaware court has yet offered a persuasive reason for their hostility to no shop clauses and the like. Instead, the invalidity of such strategies has been asserted by mere fiat. If Omnicare proves anything, it proves that the Delaware supreme court's fiat is not infallible.

SOX Costs

From Financial Executives Int'l (link via Broc), here's an analysis of what it is costing corporation to comply with just one provision of Sarbanes Oxley (§ 404):

In looking at initial one-time expenses for a "typical" $3 billion company, The Johnsson Group estimates incremental unanticipated expenditures totaling $1.1 to $3.5 million, itemized as follows:

Section 404-Related Activity- Initial one-time costs estimates:
Independent audit scope changes/fee increases	$500,000 - $2 million
Internal audit expansion	$200,000 - $500,000
Outside consulting services	$400,000 - $1 million
SubTotal	$1.1 - 3.5 million in one-time Section 404-related costs

And that's just the beginning. Given the heightened new requirements, companies can reasonably expect to incur ongoing incremental costs in the range of $800,000 to $2.8 million:

Section 404-Related Activity- Ongoing annual costs estimates:
Independent audit scope changes/fee increases	$500,000 - $2 million
Internal audit expansion	$200,000 - $500,000
Outside consulting services	$100,000 - $300,000
SubTotal	$800,000 - $2.8 million in ongoing Section 404-related costs

Delaware corporate law’s puzzling hostility to precommitment strategies: The case of dead hand and n

In an earlier post, I discussed the legal background for my analysis of Delaware corporation law’s puzzling hostility to corporate precommitment strategies. In this post, I offer a policy justification for reversing that hostility.

A conversation in my office of interest for civil procedure students

A more or less true story:

Colleague: Are you related to the "one Bainbridge" of Pennsylvania Railroad v. Chamberlain [Ed: 288 U.S. 333 (1933)]?

Me: Yes [Ed.: Looking sheepish].

Colleague: Did you know that Learned Hand said "one Bainbridge's" testimony was "not only 'somewhat suspicious in itself, but its contradiction ... so manifold as to leave little doubt"?

Me: Yes [Ed.: Becoming annoyed].

Colleague: Did you know that the Supreme Court of these United States said: "Not only is Bainbridge's testimony considered as a whole suspicious, insubstantial, and insufficient, but his statement ... is simply incredible"?

Me: Yes, [Ed.: expletive deleted], I did, you [Ed.: very offensive expletive deleted].

Colleague: Well, there's no need to get all huffy about it.

Me: [Ed.: A completely uncalled for string of great obscenities deleted.]

Delaware corporate law’s puzzling hostility to precommitment strategies: The case of dead hand and n

In class today, we discussed the Delaware supreme court's puzzling hostility to strategies by which a board of directors precommits to a particular course of action. In this post, I discuss the legal background; namely, a pair of cases in which Delaware courts invalidated the dead hand and no hand variants of the poison pill. In a subsequent post, I take up the policy issues posed by Delaware's treatment of corporate precommitment strategies.