The hypothetical introduced by Vice Chancellor Leo Strine's Essay exposes an important arena of corporate governance where adherence to the traditional norm of "shareholder primacy" is particularly troublesome. In fact, it is hard to find an analogous domain of corporate governance law that is as jarringly discontinuous as that found in the factual circumstances suggested by Strine's hypothetical. Explicitly, the legal scrutiny accorded to managers who resist a hostile acquisition depends critically on whether a court invokes the Revlon doctrine or the Unocal doctrine as the appropriate governing standard. Under the former (and its progeny), shareholder primacy arguments carry great (and nearly exclusive) weight: corporate directors must be able to demonstrate that its resistance is reasonably calculated to maximize short-term shareholder value. Under the latter doctrine, however, immediate shareholder interests are just one of a panoply of considerations that directors may use to justify resistance to a hostile bid. Moreover, the factual distinctions that separate a Revlon case from a Unocal case can be surprisingly modest and nuanced.
Of course, a simple description of this legal discontinuity dramatically undersells the aims of the James Trains hypothetical. Indeed, the hypothetical itself spawns deeper questions about whether shareholder primacy arguments are normatively justified with principles transcending the historical path dependence of judicial precedent. Even when a company has committed to a course of action that would ordinarily invoke Revlon, why should shareholder interests trump those of corporate founders, employees, debtholders, communities, or other interested constituencies? This is a difficult question to answer, and it is routinely debated within the pages of countless law reviews, conference proceedings, and legal briefs every year.
Like Strine, I have little interest in opining on the final result of this hypothetical if the dispute were litigated in the Delaware courts (though I earnestly hope that my former students would be part of the litigation teams billing hours on the issue). I have a few perspectives on the hypothetical, however, that diverge (albeit slightly) from Strine's and that might be offered for general consumption.
On the Demise of Shareholder Primacy ( Or, Murder on the James Trains Express),
S. Cal. L. Rev.
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