Lipton and Rowe's Apologia for Delaware: A Short Reply

21 Pages Posted: 22 Nov 2003

See all articles by Ronald J. Gilson

Ronald J. Gilson

Stanford Law School; Columbia Law School; European Corporate Governance Institute (ECGI); Stanford Law School

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Three themes animate Martin Lipton and Paul Rowe's thoughtful response to my critical evaluation of Unocal's fifteen-year history. First, they maintain that affording shareholders a primary role in the governance of takeovers depends on a commitment to the stock market's informational efficiency. Second, they claim that allowing shareholders to amend or repeal a poison pill ignores empirical evidence that the existence of a poison pill is associated with higher takeover premiums. Third, they assert that the Delaware General Corporation Law (DGCL) reflects an implicit mega-principle that assigns control over takeovers to managers. This short reply corrects Lipton and Rowe's misunderstanding of the importance of market efficiency in assessing the efficiency of a primary role for shareholders in takeover decision making; suggests that the impact of a poison pill on takeover premiums depends entirely on what a court will allow a target company to do with its pill; and, finally, complicates Lipton and Rowe's argument that the structure of the DGCL implies a primary takeover role for the board.

Suggested Citation

Gilson, Ronald J., Lipton and Rowe's Apologia for Delaware: A Short Reply. Available at SSRN:

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