Anti-Activist Poison Pills

54 Pages Posted: 8 Mar 2017 Last revised: 21 Aug 2017

See all articles by Marcel Kahan

Marcel Kahan

New York University School of Law; European Corporate Governance Institute

Edward B. Rock

New York University School of Law; European Corporate Governance Institute

Date Written: August 11, 2017

Abstract

Hedge funds have become active in corporate governance. They push for changes in strategy and the adoption of specific business plans. Their tactics include buying shares, conducting public campaigns, lobbying managers and other shareholders, seeking representation on the board of directors, and sometimes running a proxy contest. In response, boards have adopted a variety of “defensive measures” including deploying “poison pill” shareholder rights plans against activists.

This article provides a comprehensive policy and doctrinal analysis of the use of poison pills again activists in corporate governance contests (as distinguished from corporate control contests). We argue that, because of the significance of the specific design features – features that have so far received little judicial attention – it is increasingly important to scrutinize pills to assure that they are targeted to address legitimate objectives. Various design features of a pill interact and features that may be harmless in pills designed to fend off a hostile takeover are unjustifiable in pills employed against an activist hedge fund. While a board, acting in good faith, should be permitted to use a pill to preserve and perfect the shareholder decision-making process, it should, in doing so, act as a “neutral election board.”

Keywords: Corporate Governance, Shareholder Activism, Hedge Funds, Poison Pill

JEL Classification: G30, G34, K22

Suggested Citation

Kahan, Marcel and Rock, Edward B., Anti-Activist Poison Pills (August 11, 2017). NYU Law and Economics Research Paper No. 17-08; ECGI - Law Working Paper No. 364/2017. Available at SSRN: https://ssrn.com/abstract=2928883 or http://dx.doi.org/10.2139/ssrn.2928883

Marcel Kahan

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-998-6268 (Phone)
212-995-4341 (Fax)

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Edward B. Rock (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
826
Abstract Views
2,907
rank
30,222
PlumX Metrics