Takeovers in the Boardroom: Burke versus Schumpeter

16 Pages Posted: 1 Jun 2005  

Ronald J. Gilson

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

Reinier Kraakman

Harvard Law School; European Corporate Governance Institute

Date Written: May 2005

Abstract

This article was written for a symposium on the occasion of the 25th anniversary of Martin Lipton's 1979 article, Takeover Bids in the Target's Boardroom. In our view, Takeover Bids is a Burkean take on a messy Schumpeterian world that, during 1980s, reached its apex in Drexel Burnham's democratization of finance through the junk bond market. But the irony is that today, long after the Delaware Supreme Court has adopted many of Lipton's views, there is a new market for corporate control that no longer poses the threats - or supports the opportunities - that the market of the 1980s created. Today's strategic bidders and their targets share the same boardroom views. And for precisely this reason, "just say no" is no longer the battle cry that it once was. It stirred the crowds in the past precisely because hostile takeovers could be credibly depicted as a sweeping threat to the status quo - a claim that no one would make about today's strategic bidders. The market for corporate control now is a process of peer review, rather than an instrument of systemic change. What is lost as a result is just what, in the conservative view, has been gained: the capacity of the market for corporate control to ignite the dynamism that in our view has served the U.S. economy so well. Although Lipton may still lose today's battle to allow targets to just say no to intra-establishment takeovers, he will still have won the larger war. For now, at least, boardrooms are insulated from much of the force of a truly Schumpeterian market in corporate control of the sort we briefly glimpsed during the 1980s.

Keywords: Takeovers, defensive tactics

Suggested Citation

Gilson, Ronald J. and Kraakman, Reinier, Takeovers in the Boardroom: Burke versus Schumpeter (May 2005). ; Stanford Law and Economics Olin Working Paper No. 306; Columbia Law and Economics Working Paper No. 280. Available at SSRN: https://ssrn.com/abstract=732783 or http://dx.doi.org/10.2139/ssrn.732783

Ronald J. Gilson (Contact Author)

Stanford Law School ( email )

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Columbia Law School ( email )

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European Corporate Governance Institute (ECGI)

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Reinier H. Kraakman

Harvard Law School ( email )

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United States
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617-496-6118 (Fax)

European Corporate Governance Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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