Delaware's Retreat

Abstract

The 1980’s is appropriately considered the Golden Age of Delaware corporate law. Within that era, the Delaware courts won international attention by not just erecting the legal pillars that frame today’s corporate governance discourse but by interjecting a fresh perspective on the rights of owners and the prerogatives of managers. Four decisions stand out within a melodious chorus of great decisions of that era - Revlon , Inc. v. MacAndrews & Forbes Holding, Inc., Weinberger v. UOP, Inc., Unocal Corp. v. Mesa Petroleum Co., and Blasius Industries, Inc. v. Atlas Corporation. We refer collectively to the decisions as the Golden Quartet and show they each had the same life cycle: first, fundamentally changing Delaware’s judicial review of important recurring questions that both delineate the obligations of managers and defining the owner-manager relationship, only to be later eviscerated with the alacrity with which they first appeared.

It is of course the nature of the common law for doctrine to be honed through subsequent decisions and such honing did initially occur in the life of each of these decisions. But it is less common for the doctrine to be abandoned or so seriously qualified as occurred with the Golden Quartet. Multiple forces in the world of corporate governance have affected directors’ and officers’ roles in the modern corporation and hence the Golden Quartet’s force. Chief among such forces are the growing prevalence of the independent director, the increased concentration of the shareholder ownership stakes, and the development of hedge fund activism, to name a few. These are easy explanations and are explanations the Delaware Supreme Court has recognized for stepping back from the earlier-established doctrines. While not disagreeing that each of these forces exists and recast the focus of the doctrine, after close analysis of the rise and fall of the Golden Quartet, we set forth some additional reasons for Delaware’s retreat from each component of the Golden Quartet.