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The University of Chicago Business Law Review

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333

Abstract

“for law students or others who think of law as just a kind of a blunt instrument in which there are judgments and damages at the end of it, the fact is that the law grows through a sort of a conversation in the opinions . . .”1

This article examines the Delaware courts’ 1980s shift from managerialism to a theory I label proceduralism. I argue that managerialism, which justified corporate law’s deference to directors in the preceding fifty years, was corporate law’s response to social, political, and cultural concerns outside corporations. At the turn of the twentieth century, corporations and their managers were empowered to fight socialism by protecting the interests of workers, while in the midcentury, corporations became the first line of defense against the threats of totalitarianism and later the Cold War. Corporate directors were viewed as heroes and their power justified as necessary for the survival of American democracy. By the 1980s, however, in response to numerous hostile acquisitions, decisions of the Delaware Supreme Court appeared to discard managerialism as the Court used the fairness standard to review, and even invalidate, directors’ actions. Yet, as this Article demonstrates, the Court did not abandon its deference to corporate directors. Rather, the Court substituted proceduralism for managerialism as a theory justifying managerial power. Grounded in the concept of fairness, specifically fair dealing, proceduralism is the idea that certain procedures—for example, authorization by disinterested directors or ratification by shareholders—ensure maximization of value, and that corporate law should focus on incentivizing corporate directors to follow these procedures by assuring them that, when they so do, their actions will not be subject to judicial review. Proceduralism was cemented into law in the decades following the hostile takeover boom, as the Delaware Chancery Court enmeshed fair dealing, or fair procedure, with the presumption of the business judgment rule, assuring directors that if they followed the procedural frameworks suggested by the Court, their actions will receive the protection of the business judgment rule, whether such actions offered their shareholders a fair price or a price at all. By the twentieth century’s end, Delaware corporate law became fixated on internal processes rather than discretion and expertise; proceduralism became Delaware’s legacy.

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