Skip to content

Guhan Subramanian, Delaware's Choice, 39 Del. J. Corp. L. 1 (2014).

Abstract: This Article first documents the shift to annual elections of all directors at most U.S. corporations,and argues that the alternative of “ineffective” staggered boards would have been more desirable, as a policy matter, but is now a missed opportunity. Using this experience on staggered boards as a motivating case study, the Article then examines a policy choice regarding Section 203 of the Delaware General Corporation Law. Four facts are uncontested: (1) in the 1980s, federal courts established the principle that Section 203 must give bidders a “meaningful opportunity for success” in order to withstand scrutiny under the Supremacy Clause of the U.S. Constitution; (2) federal courts upheld Section 203 at the time, based on empirical evidence from 1985- 1988 purporting to show that Section 203 did in fact give bidders a meaningful opportunity for success; (3) between 1990 and 2010, not a single bidder was able to achieve the 85% threshold required by Section 203, thereby calling into question whether Section 203 has in fact given bidders a meaningful opportunity for success; and (4) perhaps most damning, the original evidence that the courts relied upon to conclude that Section 203 gave bidders a meaningful opportunity for success was seriously flawed-so flawed, in fact, that even this original evidence supports the opposite conclusion: that Section 203 did not give bidders a meaningful opportunity for success. The constitutionality of Section 203 is therefore “in play,” and, with the decline of the poison pill, a new constitutional challenge against Section 203 will eventually come. Delaware could avoid this showdown by lowering Section 203’s 85% threshold to 70%. Like the middle-ground approach on staggered boards, this amendment-to a single number-would also represent good policy: facilitating high-premium offers that attract a supermajority.