In a recently published article, Private Ordering with Shareholder Bylaws, Matt Wright, Marcus Hintze, and I begin our discussion of shareholder empowerment with a description of Air Products and Chemicals, Inc. v. Airgas, Inc. et al (2011), the Chancellor Chandler opinion discussed by Matt Bodie, Steven Davidoff, and Afra Afsharipour below. In the article, we are using the case to illustrate the limited power of shareholders under Delaware law:
The Airgas case is the latest in a long line of Delaware cases in which a board of directors defied its own shareholders. Under modern corporation statutes, like Delaware’s, shareholders have few options in circumstances like these. Generally speaking, shareholders in public corporations do three things: they sell, they vote, and they sue. In this Article, we propose to empower shareholders in public corporations by facilitating their ability to contract. As illustrated by the Airgas case, however, even with these three powers, shareholders have limited ability to pursue their own interests.
Also in that article, my co-authors and I use another Chancellor Chandler opinion, UniSuper Ltd. v. News Corp. (2005), to illustrate the possibility of shareholder empowerment through private ordering. We conclude:
UniSuper stands in stark contrast to Airgas and evinces the potential of private ordering to benefit shareholders in public corporations. The unconventional contract in UniSuper also highlights the difficulty of private ordering in public corporations. We propose legal reforms that will enhance the ability of shareholders in public corporations to contract with shareholder bylaws. By empowering shareholders in this way, we hope to improve shareholder monitoring of managers and to create laboratories of corporate governance that benefit the entire corporate governance system.
I was somewhat surprised to find that I had blogged about the UniSuper case when it was decided in 2005. You can see that post here. While I was not enamoured with some aspects of that opinion, my response to Chancellor Chandler's argument relating to the shareholders' power to control the board of directors through contract was a single word: "Wow!"
It was a surprising result, I thought, in the face of an argument that the contract at issue in the case would be unenforceable because it purported to limit the board's discretion without using a charter amendment. The Delaware Supreme Court had struck down contracts that limited board discretion (e.g., QVC and Omnicare), and even if you didn't like those opinions, there they were.
And this has caused me to wonder with regard to Airgas, why didn't Chancellor Chandler just distinguish the Supreme Court precedent and rule in favor of Air Products? That would have comported with his "personal view" of the best result (at least at the time ... he retreats from this position in a later interview), but for some reason, he felt "constrained by Delaware Supreme Court precedent." Really? The precedent (Time, Unitrin) is pretty flimsy on the issue presented in Airgas, and that precedent would have been easy to distinguish. Chancellor Chandler did it himself in the Marcus interview linked by Matt Bodie. It's a well-reasoned opinion -- typical for Chancellor Chandler -- but I was hoping for a full-blown revival of Interco. Airgas didn't even come close.
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