Pills in a World of Activism and ESG

The University of Chicago Business Law Review (2022, Forthcoming)

22 Pages Posted: 11 May 2022 Last revised: 29 May 2022

See all articles by Caley Petrucci

Caley Petrucci

University of San Diego School of Law

Guhan Subramanian

Harvard Business School

Date Written: May 8, 2022

Abstract

Easterbrook and Fischel’s The Economic Structure of Corporate Law advances their now famous passivity thesis, which posits that managers should remain passive in the face of an unsolicited tender offer for the company’s shares. Consistent with the broader Chicago-school economic belief, Easterbrook and Fischel argue that markets are generally efficient, and therefore restrictions on the market (like poison pills) are bad. In doing so, Easterbrook and Fischel also consider and reject externalities that might cause the market for corporate control to not function well. Thirty years have passed since Easterbrook and Fischel’s seminal work. And the world has changed in meaningful ways, with the rise of stakeholder governance, ESG, and stockholder activism. We therefore propose some ground rules that would govern pills in today’s corporate world. These rules, we believe, would effectively balance the board’s interest in considering a broad set of constituencies and the challenges of facing increasingly sophisticated and coordinated shareholder activists against the rights of all shareholders, including activists, to solicit support for their ideas or attempt to gain control of the company.

Keywords: poison pill, corporate law, shareholder rights plan, ESG, Easterbrook, Fischel, law & economics, acting in concert, activism, activist

Suggested Citation

Petrucci, Caley and Subramanian, Guhan, Pills in a World of Activism and ESG (May 8, 2022). The University of Chicago Business Law Review (2022, Forthcoming), Available at SSRN: https://ssrn.com/abstract=4104799 or http://dx.doi.org/10.2139/ssrn.4104799

Caley Petrucci (Contact Author)

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Guhan Subramanian

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-9784 (Phone)
617-496-7379 (Fax)

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