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99 Colum. L. Rev. 1168 (1999)
Federalism and Corporate Law: The Race to Protect Managers from Takeovers

handle is hein.journals/clr99 and id is 1208 raw text is: FEDERALISM AND CORPORATE LAW: THE RACE TO PROTECT MANAGERS FROM TAKEOVERS Lucian Arye Bebchuk* and Allen Ferrell** This paper analyzes certain important shortcomings of state competition in corporate law. In particular, we show that, with respect to takeovers, states have incentives to produce rules that excessively protect incumbent managers. The development of state takeover law, we argue, is consistent with our theory. States have imposed antitakeover protections that have little policy basis and have provided managers with wider and more open-ended latitude to engage in defensive tactics than endorsed even by the commenta- tors most favorable to the use of such tactics. Furthermore, states have elected, even though they could have done otherwise, to impose antitakeover protections on shareholders who did not appear to favor them in a way that left shareholders with little choice or say. Finally, we conclude by pointing out that proponents of state competition cannot reconcile their unqualified support of state competition with the current state of corporation law. TABLE OF CONTENTS INTRODUCTION .................................................. 1169 I. THE THEORY OF TAKEOVER LAW UNDER STATE CoMPET TION ............................................ 1172 A. The Importance of Managers ........................ 1173 B. Managers' Preferred Takeover Law .................. 1174 1. Market Incentives ................................ 1174 2. The Effect of Restrictive Takeover Law on Managers' Interests .............................. 1175 3. Managers' Interests in Acquiring other Com panies ...................................... 1176 II. REFLECTIONS ON STATE TAKEOVER LAW .................... 1177 A. The Pro-Management Tilt of State Takeover Law ..... 1177 1. How States Worked To Make Takeovers More Difficult ......................................... 1177 a. Rules Restricting Bidders ..................... 1177 b. Rules Governing Defensive Tactics ............ 1179 c. The Corporate Fortress ...................... 1180 2. The Weak Policy Basis for State Antitakeover Law ............................................. 1180 * WilliamJ. Friedman & Alicia Townsend Friedman Professor of Law, Economics and Finance, Harvard Law School. ** John M. Olin Fellow in Law, Economics and Business, Harvard Law School. For financial support, both authors are grateful to the John M. Olin Center for Law, Economics and Business at Harvard Law School. We would also like to thank Victor Brudney, John Coates, Jesse Fried, Andrew Guzman, Marcel Kahan, and Mark Ramseyer and participants in the symposium for their valuable comments. 1168

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