On Thursday, April 24, 2014, Washington and Lee Law professor Lyman P.Q. Johnson speaks at University of St. Thomas at an event sponsored by the Veritas Institute. The conference is part of the “Higher Calling Series” and titled “Business as an Agent for Social Change: Social Entrepreneurship, Benefit Corporation, Curing Poverty“.
Professor Johnson will participate as a panelist in a conversation about social entrepreneurship and Benefit Corporations and the positive social role they play in contemporary society as well as possible unintended consequences such movements can have for business. Professor Johnson is joined by John McVea, Ph.D. of the University of St. Thomas, Elizabeth Babson of Drinker Biddle and Reath LLP, Haskell Murry of Belmont University and Michael Naughton, Ph.D. of the University of St. Thomas.
Washington & Lee law professor Lyman P.Q. Johnson participated in an online symposium hosted by The Conglomerate on the topic of Sebelius v. Hobby Lobby Stores, Inc. and its companion cases. Professor Johnson was invited to join fellow corporate law scholars to debate both sides of the issues presented at the Supreme Court on March 25, 2014.
Professor Johnson’s contributions include:
Corporate Law in the Supreme Court, March 24, 2014
Religious Obligations in the Corporation, March 25, 2014
Corporate Law in the Arguments, March 26, 2014
The Supreme Court and Corporate Purpose, March 27, 2014
Read more of Professor Johnson’s scholarship here.
Washington & Lee law professor Lyman P.Q. Johnson will publish in the forthcoming issue of the Washington & Lee Law Review. The article, The Dwindling of Revlon (with Rob Ricca) was recently reviewed by another Washington and lee law professor, David Millon at Jotwell: Corporate Law.
The review is titled What’s Left of Mandatory Shareholder Primacy? and was published on March 18, 2014.
Washington & Lee Law Professors Lyman Johnson and David Millon have just posted a critique of a forthcoming piece by Professors Bebchuk and Jackson. Their post is available at the Professor Bainbridge blog:
Preempting Professors Bebchuk and Jackson: Poison Pills, State Corporate Law, and the Williams Act
Lyman Johnson & David Millon
Washington & Lee University School of Law
Professors Lucian Bebchuk and Robert Jackson recently posted a provocative paper,Towards a Constitutional Review of the Poison-Pill, forthcoming in the Columbia Law Review. The paper, regrettably, makes several claims that are flatly wrong, and it also misreads the Williams Act.
First, Professors Bebchuk and Jackson assert that “corporate law scholars have overlooked the unresolved validity of state-law poison-pill rules”; such scholarship has “focused exclusively on anti-takeover statutes, ignoring the validity of state-law poison-pill rules”; and, [the Bebchuk-Jackson paper is the] “first systematic analysis of the possibility that these rules are preempted by the Williams Act…”
These assertions are incorrect. Twenty-five years ago, we wrote a lengthy article that pointedly examined possible Williams Act preemption of all non-statutory state corporate law rules, including those sanctioning poison pills, that might impede corporate takeovers. We took no final position on the preemption issue in that piece (we addressed that larger question in a companion article published in the Michigan Law Review discussed below) but instead sought only to extend the then lively preemption debate beyond its narrow focus on anti-takeover statutes. Thus, we expressly considered whether state legal rules condoning poison pills might be preempted, concluding, critically, that if “the Williams Act mandates shareholder autonomy, this state law rule clearly undermines that federal policy.” We also explicitly noted that, under the so-called “meaningful opportunity to succeed” standard crafted by federal district judges in Delaware, state common law rules upholding poison pills lack just such a safety valve, and thus may be preempted under that test.
Moreover, we did not confine our analysis to poison pills, but more broadly subjected to preemption analysis all state corporate law rules that might impede takeover bids, including Delaware’s quite extensive judge-made law of takeovers. State decisional law, like state statutes, must, of course, yield to federal law under the Supremacy Clause. Unlike Professors Bebchuk and Jackson, therefore, we were able to explain (in our footnote 15) precisely why it is not the poison pill plans themselves but, rather, judicial rulings upholding them that comprise the state “law” subject to constitutional review. This is a particularly important point for any preemption attack on Delaware poison pill law because it is almost exclusively common law in origin. In focusing on statutes authorizing poison pills and, in the absence of statute, on poison pills as “private contracts,” Professors Bebchuk and Jackson therefore continue to underestimate the potential breadth of the preemption issue we first identified in 1989 and actually make the preemption analysis as to non-statutory poison pills much more elaborate than it needs to be.
Second, Professors Bebchuk and Jackson state that “no court has ever expressly considered a preemption challenge to the validity of state-law poison-pill rules.” That too is an inaccurate statement. In 1995, the Fourth Circuit Court of Appeals rejected a preemption challenge to four of Virginia’s corporate statutory provisions, including a provision authorizing poison pills and a provision codifying the director standard of conduct as being ‘good faith business judgment.” The Williams Act challenge thus went far beyond the Control Share Acquisition and Business Combination statutes. The Fourth Circuit considered the argument made by Tyson Foods, the challenger, that Virginia’s statutes were, in concert, so potent that they made it “impossible” in practice to succeed with a bid. The Court, in forthrightly rejecting the Delaware federal court’s “meaningful opportunity to succeed” standard, observed that the Williams Act did not protect bidders, and upheld all of Virginia’s laws, including the pill provision, against both Supremacy and Commerce Clause attacks. The Supreme Court denied certiorari. Presumably the same analysis would apply to state court judgments validating poison pills in the absence of a statute.
Third, and perhaps of greatest importance, Bebchuk and Jackson’s arguments about the Williams Act’s preemption of poison pill rules are faulty regardless of whether they are sanctioned by statute or judicial decision. As we explained at length in our Michigan Law Review article cited above, the Williams Act does not mandate a federal pro-takeover policy. Rather, Congress chose not to take a position on one side or the other of the then novel debate about the costs and benefits of hostile takeovers. For example, the Senate Report on the bill that became the Williams Act states that it “avoids tipping the balance of regulation either in favor of management or in favor of the person making the hostile takeover bid.” SEC Chairman Cohen echoed this sentiment when he stated that “[t]he Commission does not believe that any bill should be adopted which would either encourage or discourage takeover bids . . ..” Instead, Congress’ objective was the more modest one of requiring disclosure of information relevant to shareholders confronted with a tender offer (consistent with the basic premise of federal securities regulation) and alleviating pressures on shareholders to tender who might otherwise prefer to hold their shares.
As we noted in our Michigan piece, we think the mistake that scholars like Bebchuk and Jackson make when they ascribe preemptive force to the Williams Act results from a mistaken equation of Congressional assumptions about the world of hostile takeovers in 1968 with Congressional intentions about the appropriate balance of power between target company management and shareholders then and in the future. In 1968 state corporate law did little to limit the freedom of shareholders to decide for themselves whether to accept a hostile bid. Congress took that fact for granted and sought to enhance the ability of shareholders to make these choices in an informed, deliberate manner within the existing legal framework. It is wrong, however, to claim that Congress sought not only to make a limited adjustment to the then current legal regime but sought also to in effect freeze that larger context and preserve it for future generations. In 1968, Congress had no reason to foresee that by the late 1980s state legislation and judicial opinions would confer broad authority on target company management to block shareholder access to hostile bids. That was not the problem that Congress chose to address in the Williams Act. That statute thus is irrelevant to current debates about the lawfulness of poison pills and other state law anti-takeover devices. Those seeking to resolve such questions in favor of shareholder autonomy need to look elsewhere for legal support.
Shareholder decisions about whether to accept hostile tender offers are more than simply choices about whether to sell or hold securities. Because hostile bids are designed to achieve a change of control, shareholder responses have important corporate governance implications. In this respect, efforts to tie target company management’s hands by attacking the legality of poison pills are not just an effort to give target company shareholders the opportunity to realize short-term gains. They are also part of the larger shareholder empowerment agenda that would limit the discretion of management to determine the long-run best interests of the corporation and its shareholders. That’s a bad idea in other contexts and it’s a bad idea here too.
 Lyman Johnson and David Millon, Does the Williams Act Preempt State Common Law in Hostile Takeovers?, 16 Sec. Reg. L.J. 339 (1989).
 Lyman Johnson and David Millon, Misreading the Williams Act, 87 Mich. L. Rev. 1862 (1989).
 WLR Foods, Inc. v. Tyson Foods, Inc., 65 F.3d 1172 (4th Cir. 1995).
 516 U.S. 1117 (1996).
Washington & Lee law professor Lyman Johnson has published a new article in the American University Business Law Review on teaching mergers and acquisitions in a business planning course. The article, M&A as One Component of a Business Planning Course is forthcoming in volume 3:1.
From the abstract:
This article describes how mergers and acquisitions (“M&A”) can be taught in law school as one component of a business planning course that also addresses other stages of a business’s development, such as the start-up and financing of growth stages. This approach to covering M&A is in contrast to a curricular offering that focuses solely on M&A for an entire semester. The benefits and costs of such an M&A module approach are identified, and the key pedagogical features of the M&A segment are explained. One critical factor for successful pedagogy is for the professor to collaborate with both an experienced transactional lawyer and a seasoned transactional business person. Effective partnering in this way requires the professor to articulate clearly to those cohorts the importance of transmitting practical knowledge and experience, to be sure, but doing so while being especially mindful of the teaching/learning process itself. For those lawyers and business persons who can successfully combine deep sophistication with attentiveness to the teaching function — a challenge in one or two-day “cameo” appearances — the pedagogical payoff is immense. This article pays special attention to the crucial role of the business “deal person” in this approach to M&A.
Read more of Professor Johnson’s scholarship here.
On February 7-8, 2014 the Center for Law, Economics & Finance (C-LEAF) at George Washington University hosted its fourth annual Junior Faculty Business and Financial Law Workshop. The Workshop supports and recognizes the work of young legal scholars in accounting, banking, bankruptcy, corporations, economics, finance and securities, while promoting interaction with selected senior faculty and practitioners. Washington & Lee law professor Lyman Johnson participated as one of the distinguished scholars and practitioners to comment on presented works. Professor Johnson commented on Megan Shaner‘s work The (Un)enforcement of Corporate Officer Duties. The full program from the workshop is here.
Find more of Professor Johnson’s scholarship here.
Washington & Lee law professor Lyman Johnson will speak at the upcoming Love and Law Conference sponsored by the Herbert and Elinor Nootbaar Institute on Law, Religion, and Ethics and hosted at Pepperdine University. The conference will address questions about the role of Christian love, or agape, in law.
Professor Johnson will speak at a plenary session, Finding love in law where you might not expect it, on Saturday, February 7th. He will address issues of Love and Corporate Theory.
Learn more about Professor Johnson’s scholarship here.
Washington & Lee law professor Lyman Johnson is invited to contribute to both the Columbia Law School Blue Sky Blog and the Harvard Law School Forum on Corporate Governance and Financial Regulation in anticipation of his forthcoming article The Dwindling of Revlon (with R. Ricca). From the abstract:
This article traces the dramatic dwindling of the iconic Revlon doctrine. Over the past several years, we observe a paradox in M&A litigation. The number of challenges to “done deal” transactions has skyrocketed, but the number of successful Revlon claims – those procuring a remedy – has plummeted. Having set out to suggest, as a theory and policy matter, that Revlon might be extended into the attempted but failed “no deal” context, we conclude, ironically, that today there is little remedial clout to the Revlon doctrine in any setting.
Professor Johnson’s post at the CLS Blue Sky Blog appears today, January 30th, here.
Washington and Lee law school professor Lyman Johnson has published “Unsettledness in Delaware Corporate Law: Business Judgment Rule, Corporate Purpose” in the Delaware Journal of Corporate Law. From the abstract.
This Article revisits two fundamental issues in corporate law. One — the central role of the business judgment rule in fiduciary litigation — involves a great deal of seemingly settled law, while the other — is there a mandated corporate purpose — has very little law. Using the emergent question of whether the business judgment rule should be used in analyzing officer and controlling shareholder fiduciary duties, the latter issue having recently been addressed by Chancellor Strine in the widely-heralded MFW decision, this Article proposes a fundamental rethinking of the rule’s analytical preeminence. For a variety of reasons, it is suggested that fiduciary duties should be made more prominent and the business judgment rule should be dramatically deemphasized. The policy rationales for the rule are sound, but they have no relevance for shareholders and introduce needless complexity. For directors, those rationales do not apply in the loyalty setting, and in the care setting, can be achieved by recalling simply that there is no substance to judicial review in that context.
As to corporate purpose, the Article advocates that Delaware law permit a pluralistic approach in the for-profit corporate sector. Long agnostic about ultimate corporate objective, Delaware law may have turned unnecessarily toward a strict shareholder primacy focus in the 2010 eBay decision. To bring clarification and to foster flexibility, Professor Johnson recommends a legislative default provision, with an opt-out feature. This feature should be in the business corporation statute itself. Delaware’s new benefit corporation law laudably advances the goal of institutional pluralism, but does so at the ironic risk of reinforcing a belief that business corporations themselves are legally permitted only to maximize profits. Judges in a democratic society should not dictate institutional goals.
The article is available for download from SSRN. This work is based on Prof. Johnson’s lecture last year at Widener University School of Law, where he delivered the prestigious Francis G. Pileggi Distinguished Lecture in Law.
Prof. Lyman Johnson Presents at First Annual Workshop for Corporate & Securities Litigation at Illinois College of Law
On Friday, November 8, W&L Law Professor Lyman Johnson presented his paper The Dwindling of Revlon at the First Annual Workshop for Corporate & Securities Litigation at the University of Illinois College of Law. Here is an excerpt from the Introduction:
In 2012, stockholders challenged a remarkable 96% of M&A transactions with a value greater than $500 million and 93% of deals with a value greater than $100 million, a stunning upsurge since 2005. The vast majority of these lawsuits settle, largely with disclosure-only accords, but where monetary benefits are involved, the average payment has increased in the last few years. A mainstay argument by plaintiffs is that the selling company’s board of directors failed to maximize the sale price − i.e., the board breached its so-called Revlon duty. The “Revlon” in Revlon duty, of course, refers to Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., a landmark 1986 ruling by the Delaware Supreme Court. Revlon was one of a handful of takeover-fueled decisions during the 1980s that fundamentally redrew the map governing director duties in the M&A setting. Given the high volume of M&A activity in the U.S., and the frequency of court challenges to that activity, Revlon has become an assumed and accepted part of the legal landscape for both the practicing M&A bar and the judiciary.
Yet, in 2013, Delaware’s contemporary Revlon jurisprudence has come under fierce scholarly attack. Professor Stephen Bainbridge has severely criticized several Chancery Court decisions for misapplying the Supreme Court’s core teachings on Revlon, a critique Professor Mohsen Manesh counters is itself misconceived. Professor Frank Gevurtz has leveled a more fundamental broadside against Revlon, contending it lacks any defensible policy rationale, and advocating its outright abandonment.
We have an altogether different perspective than the bar, the judiciary, and other scholars. We argue that, given its intersection with another important arc of recent Delaware decisional law, Revlon today is, ex post, essentially a constrained remedies doctrine, applicable only pre-closing for possibly granting non-monetary sanctions. We arrive at our novel thesis concerning Revlon as the natural conclusion of examining the following question: Does Revlon apply only if a sales transaction is entered, or does it also govern sales efforts by boards that utterly fail even to produce a transaction? If an attempted sale failed due to a flawed process, might the directors nonetheless have breached their Revlon duty because of how poorly they conducted the selling effort? Maybe, in other words, the reach of Revlon is actually far broader than many appreciate. Probing these neglected issues through a remedies perspective offers a useful, if ironic, lens on where exactly, as it turns out, the overblown Revlon doctrine stands today.