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This Article explores the relationship between takeovers, legal doctrines and private ordering. The authors first argue that the sanctioning of the poison pill and the "just say no" defense by Delaware courts was far less consequential than feared by its critics and hoped for by its proponents. Rather, market participants adapted to these legal developments by embracing two adaptive devices-greater board independence and increased incentive compensation-which had the effect of transforming the pill, a potentially pernicious governance tool, into a device that is plausibly in shareholders' interest. Interestingly, however (and for critics of the pill, disconcertingly), market participants neither tried to change the law nor opt out of it. The authors place these developments in a broader perspective. They draw a distinction between bilateral devices -which enjoy support from both stockholders and managers-and unilateral devices, and argue that bilateral devices are more likely to be welfare-enhancing are more stable, are privileged by Delaware law, and tend to further Delaware's status as leading domicile for public corporations Greater board independence and increased incentive compensation are examples of such bilateral devices. The authors conclude by examining why Delaware courts embraced the poison pill (at the time, a largely unilateral device, albeit one with bilateral features) and how they should deal with the use of pills by companies with staggered boards.
INTRODUCTION
Twenty years ago, a wave of hostile takeovers burst on the scene and sparked a public debate over corporate control that continues to this day. Positions polarized quickly, with academics largely applauding the phenomenon and lawyers representing corporate boards largely decrying it. While some have modified their positions somewhat, the debate remains remarkably unchanged.1
Although it seemed at the time that the issues facing the Delaware courts-whether a poison pill was legal; whether managers could "just say no"-had decisive importance, somehow, in retrospect, they do not seem to have mattered quite so much. None of the parade of horribles predicted by partisans came to pass. Though takeover tactics have changed somewhat, the takeover game has continued along, its pace determined more by macroeconomic factors than by the details of legal doctrine, with new modes of gaining control developing as older methods have become more difficult. Most strikingly, despite judicial and legislative rejection of the...