The New Unocal

Abstract

At a time when so much corporate law conversation and scholarship seems to revolving around ESG, diversity, and corporate purpose it is easy to lose sight of other fundamental change happening at the center of traditional corporate governance. Delaware’s recent (2021) decision in the Williams Companies Stockholder Litigation is such an example. For almost 40 years, poison pills, the most innovative and important takeover defense of modern corporate governance, have survived enhanced judicial scrutiny under the well-known cases of Unocal and Blasius. Williams presents an evolution in several key Unocal elements that increase the likelihood of poison pills failing judicial review. This article explains this surprising turn by developing three core points. Part I resets the frame for viewing modern corporate governance that emphasizes not just the innovative vehicles such as Unocal for enhanced judicial scrutiny of director acts in takeover contexts, but also focuses on the learning of Moran, a case that came before the Supreme Court just four days after its decision in Unocal. There the high court essentially validated poison pills based on the primacy of director actions in all things corporate, even in a world of enhanced scrutiny. The tension between the two lines of cases remains the most difficult challenge of modern corporate governance. Part II briefly reviews Unocal cases decided by the Delaware Supreme Court since 1985 that have essentially reaffirmed the initial resolution of this conflict, so that the opposite outcome of Williams in 2021 comes across as something of a surprise. Yet, the vagueness and ambiguity of the interaction between Unocal and Blasius during that time had stimulated a much more robust analysis by the Chancery judges in the early 21st century that provided a broader foundation for Williams to draw on. Part III explores explanations for the new Unocal. In particular it focuses on the technological and market changes since 1985 in terms of digital information and cyberspace that have transformed how we gather, store and access information relating to corporate governance and how that has permitted shareholders to do things that just weren’t possible four decades ago. The explanation for the change visible in Williams as to the Unocal standard of review illustrates Delaware’s recognition of the new capacities of shareholders in support of the fundamental premise at the core of Unocal and related cases from the 1980s-- the shareholder franchise is at the core, then and now, of the legitimacy of director power over property they do not own.

Keywords: takeovers, fiduciary duty, enhanced scrutiny, Delaware corporate law, Unocal, Blasius