From Corwin to Dell: The Cost of Turning a Blind Eye

Abstract

This essay considers the ramifications of the Delaware Supreme Court’s December 2017 Dell appraisal decision within the context of Delaware’s more sweeping clampdown on shareholder litigation protections in recent years, beginning with Corwin in 2015. While the Delaware Supreme Court rejected the “judicial gloss” of a formalized deal price rule in Dell, the gloss has, for all intents and purposes, been applied. The appraisal remedy had already been enfeebled in recent years by a slew of at-or-below deal price rulings, but Dell’s promulgation of a de facto procedural safe harbor marks a more systematic curtailment. The efficacy, as well as the public policy coherency, of Dell is tied to the notion that procedural “best practices” lead to, or are reflective of, fair dealing. Unfortunately, this is often not the case because the actors who are most likely to be conflicted are also the ones most likely to be in control the narrative presented in public-facing materials, particularly amid a broader boardroom shift—the “lone-insider” effect—which has undermined the monitoring capabilities of independent directors. In addition to lower deal premia and higher agency costs, the primary effects of Delaware’s post-2015 effort to dull shareholder defenses, culminating in Dell, will likely be: 1) faster CEO pay growth, and 2) more M&A and higher industry-specific measures of concentration, which research has shown to contribute to declining competition, lower levels of labor market mobility, wage stagnation, and increasing inequality in the United States.