May 28, 2008
What happened to the other constituents?
Posted by Lisa Fairfax

As I sat through what (as you all can now tell) I believed to be a terrific conference on takeovers, it dawned on me that I had yet to hear anything about non-shareholder constituents.  Indeed, I watched almost all of the panels and, at least during the time I was there, no one on the panels or in the audience mentioned other constituents and their impact on takeovers or the M&A market.  I found the absence of such a conversation interesting for a couple of reasons. 

First, some panelists and participants stressed the apparent breadth of discretion afforded to corporate officers and directors during takeovers and acquisition.  Given that one oft-cited explanation for such broad discretion has been the board's need to take account of interests beyond shareholders and profits, I found it interesting that no one discussed the explanation--even if only to attack it as illegitimate.  Second, there was discussion of Delaware cases such as Unocal and Time, which enable boards broad discretion to thwart takeovers.  These cases mark one the first times that Delaware courts appeared to acknowledge corporate directors' ability to focus on other constituents and issues beyond shareholder maximization when carrying out their fiduciary duties.  And thus I found the absence of discussion on this acknowledgment interesting.  Third, I suspect that many proponents of corporate social responsibility and the notion that corporations should pay heed to other constituents believe the takeover period to be critical for the interests of other constituents.  On the one hand, that period is viewed as a time when the interests of shareholders and non-shareholders overtly collide, and hence that period brings to the fore the question of whether and to what extent corporate managers can ignore short term profit in favor of a focus on non-shareholder concerns.  On the other hand, the takeover period can be viewed as a time when some important doctrines recognizing the corporate ability to pay heed to non-shareholder constituents emerged, not only in the form of some case law, but also in the form of so-called other constituency statutes. 

So now I am left to wonder if there is any relevance to the absence of dialogue on other constituents.  On the one hand, that absence may appear to confirm that such constituents are not apart of the main-stream conversation about corporate acquisitions generally, and fiduciary duties specifically. On the other hand, the conference theme was to commemorate the Williams Act and hence a discussion of other constituents may be seen as not directly on point with such a theme.  Then too, given its focus on acquisitions both in the US and around the globe, there were no doubt many important conversations that had to be left for another day.  And perhaps it is as simple as that. 

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