Academic

I don?t have a lot to add to Gordon?s and Christine?s earlier posts ? which are both terrific and capture things well. But two aspects of the eBay case (and subsequent discussion) have stood out to me:

First, like a few others, I took note of (and was a bit perplexed by) how Chancellor Chandler segregated the fiduciary duty claims against the board from ordinary breach of contract / implied covenant of good faith claims.  Evidently, eBay had only pressed on the former set of claims and not the latter, and ultimately Chandler limited his analysis to fiduciary duties. The opinion hints, moreover, that had Chandler been asked to address the contract clams more directly, eBay might have pulled the trifecta against the pill, the first refusal dilution, and the decision to stagger the board.  Although I guess one can understand Chandler?s housekeeping desire to keep fiduciary duty law and contract law separate, that?s a very tall order to fill in these sorts of disputes ? an admission that Chandler himself seems to cop to in the footnotes.  Indeed, if in addition to the charter and bylaws, shareholders have executed additional contracts specifying more fully their rights and obligations toward the corporation and its board, it?s hard to see how the enterprise of analyzing the terms, conditions, omissions and ambiguities of those contractual instruments can be conducted without directly triangulating on the board?s underlying fiduciary duties.  And vice versa. One gathers that eBay didn?t raise the contract issues separately from its fiduciary claims because it didn?t see too much of a distinction between them.  Until reading this opinion, I probably wouldn't have blamed them.

Second, Chancellor Chandler?s analysis of the Unocal claim will likely invite months or years of analytical navel gazing about Delaware?s view of shareholder primacy (well, at least for those of us who can still see their navels).  In particular, much has already been made about Chandler?s conclusion that craigslist?s asserted goal of defending ?corporate culture? is insufficient to withstand Unocal threat prong analysis.  Wrote the Chancellor:

Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders. The ?Inc.? after the company name has to mean at least that.

Some pundits (here) have opined that this excerpt makes clear that corporate fiduciaries in Delaware are not permitted to take account of non-shareholder constituencies in discharging their duties.  Frankly, I don?t see it, either in the text of this passage itself (?Those standards include??), or as a conceptual matter.  As to the conceptual part, this may be as much an issue of framing effects as anything else. Perhaps craigslist?s key strategic miscalculation was to lean so heavily on a general and unadorned concept such as ?corporate culture? ? too abstract and indeterminate on its own terms to provide much jurisprudential traction.  One can wonder whether Chandler?s response would have been different had craigslist?s argument about its perceived threat been articulated differently. For instance, suppose their Unocal defense had been framed something like this:

?Unlike eBay, craigslist?s business plan envisions growing a vast population of customers, who are attracted by free listings and remain loyal because of them. The resulting army of users represents a stable and durable network, which in turn enhances craigslist?s name recognition and scale economies, and makes it possible to extract substantial revenue from the subset of users who are required to pay for listings.  Over the long term, the directors have come to conclude, this strategy is will serve the interests of shareholder return handsomely?

I don?t know for sure, but I?d speculate Chandler?s analysis could well have gone differently under this form of framing.  As per Gordon?s earlier post, I like the Dodge v. Ford comparison here as well.  Although it wasn?t a Delaware case, in Dodge Henry Ford similarly embraced an unadorned ?talk to the hand? defense when asked to defend his management decisions from a shareholder-return perspective.  But it would seemingly have been easy for him to reframe his motivations to be more about shareholders.  Within the confines of the business judgment rule (or even the slightly less deferential version of it under Unocal analysis where the burden is on the board), this sort of framing is readily available and often effective.