The Uncertain Case for Takeover Reform: An Essay on Stockholders, Stakeholders and Bust-Ups

In this Article, Professor John Coffee considers under what circumstances there could be a legitimate role for state regulation of tender offers. Professor Coffee suggests that state anti-takeover laws could (but do not) function to protect other stakeholders, including corporate management, in the target corporation where the implicit contract between the corporation and these stakeholders has broken down. He advances a model of corporate directors as mediators between shareholders and stakeholders in order to protect the expectations embodied in a web of implicit and explicit contracts. Professor Coffee suggests that takeovers would be more palatable if the interests of stakeholders were taken into account. Compensation formulas could be designed that would give managers a share in takeover gains. State takeover control legislation could have a legitimate role if it encouraged a more equitable sharing of takeover gains with stakeholders, such as employees and contractors, who are unable to contract with shareholders. Although Professor Coffee does not believe that takeovers should be prohibited or chilled, he believes that it is a valid legislative goal to seek to protect the expectations of these other stakeholders through a policy of sharing the control premium. Finally, Professor Coffee concludes that judicial scrutiny of corporate governance laws will ultimately continue to incorporate a balancing test, even if courts do not explicitly acknowledge the use of such criteria. Courts will continue to weigh the intrastate justifications and the results of the legislation against any resulting restraints on interstate commerce in deciding whether the laws pass constitutional muster