Delaware Journal of Corporate Law o Copyright 2000 by The Widener University School of Law VOLUME 2 2000 NUMBER 1 SYMPOSIUM THE NEXT CENTURY OF CORPORATE LAW PREFACE This issue is an edited and annotated transcript of the proceedings at a symposium on the Next Century of Corporate Law, held on May 20-21 1999, at the DuPont Country Club, Wilmington, Delaware. The symposium tly by widener University School of Law and the Corporate Law Section of the Delaware State Bar Association We acknowledge with gratitude the following persons for their support of the conference reported in this issue E. dupont de nemours co and CSC/The united states c providers of major funding for the conference Members of the conference planning committee Frederick H. Alexander, Esquire Roger w. Arrington, Esquire Jesse A. Finkelstein, Esquire Michael D Goldman, Esquire Prof Professor Ann C. Stilson Edward P. Welch, Esqu
1 Delaware Journal of Corporate Law © Copyright 2000 by The Widener University School of Law VOLUME 25 2000 NUMBER 1 SYMPOSIUM THE NEXT CENTURY OF CORPORATE LAW May 20-21, 1999 PREFACE This issue is an edited and annotated transcript of the proceedings at a symposium on the Next Century of Corporate Law, held on May 20-21, 1999, at the DuPont Country Club, Wilmington, Delaware. The symposium was sponsored jointly by Widener University School of Law and the Corporate Law Section of the Delaware State Bar Association. We acknowledge with gratitude the following persons for their support of the conference reported in this issue: E.I. duPont de Nemours & Co. and CSC/The United States Corporation Company, providers of major funding for the conference. Members of the conference planning committee: Frederick H. Alexander, Esquire Roger W. Arrington, Esquire Jesse A. Finkelstein, Esquire Michael D. Goldman, Esquire Professor Lawrence A. Hamermesh Professor Ann C. Stilson Edward P. Welch, Esquire
DELAWARE JOURNAL OF CORPORATE LAW Tol WELCOME DOUGLAS E. RAY DEAN WIDENER UNIVERSITY SCHOOL OF LAW DEAN RAY: Good morning. My name is Douglas Ray. It is my pleasure to welcome you on behalf of the faculty and of the Widener University School of Law. I would like to express our appreciation to the Delaware State Bar Association for co-sponsoring this program and to the Du Pont Company and CSC, the United States Corporation Company for their financial support of this program. Our law school is very proud to be associated with what promises to be an outstanding program, and we're very grateful to all of the distinguished presenters and commentators who will be sharing their expertise and insights wi ver the next two d I am pleased to report that these proceedings will be printed in widener's Delaware Journal of Corporate Law. It promises to be an outstanding In my first four months as Dean of widener's Law School, I've discovered how lucky we are to be the only law school in Delaware. There is a wealth of legal talent on the bench and in the bar, and I'm particularly ateful to the members of the Delaware Supreme Court, Chancery Cour and Superior Court, and to the many members of the Delaware Bar who regularly provide their time and talent to our School. I am proud to be associated with the members of the Widener full-time and adjunct faculty who will be part of this program I'd like to make special note of Widener Professor Larry Hamermesh, one of the people instrumental in putting this program togeth Professors Hamermesh, Stilson, and Regan of our full-time faculty will be on the program, and I'm proud of the expertise in this field they bring to our School. Professor Hamermesh has asked me to thank all of you who worked on the program, and, in particular, to thank Chief Justice Veasey for his counseling and assistance at every step in the development of the Corporation Law is headed in the next century. Given its evolution over first hundred years into one of our most important legal institutions, this is no easy task. Fortunately, we are honored to have with us some of the worlds most expert scholars, corporate and government leaders, and judges to help us. It is a privilege for the Widener University School of Law to join the Delaware State Bar Association in presenting this timely program d like now to introduce one of the talented people who made this program a real ity, Mr. Craig B. Smith, Chair of the Corporate Law Section of the delaware State Bar Association
2 DELAWARE JOURNAL OF CORPORATE LAW [Vol. 25 WELCOME DOUGLAS E. RAY, DEAN WIDENER UNIVERSITY SCHOOL OF LAW - - - - - DEAN RAY: Good morning. My name is Douglas Ray. It is my pleasure to welcome you on behalf of the faculty and students of the Widener University School of Law. I would like to express our appreciation to the Delaware State Bar Association for co-sponsoring this program and to the Du Pont Company and CSC, the United States Corporation Company, for their financial support of this program. Our law school is very proud to be associated with what promises to be an outstanding program, and we're very grateful to all of the distinguished presenters and commentators who will be sharing their expertise and insights with us over the next two days. I am pleased to report that these proceedings will be printed in Widener's Delaware Journal of Corporate Law. It promises to be an outstanding issue. In my first four months as Dean of Widener's Law School, I've discovered how lucky we are to be the only law school in Delaware. There is a wealth of legal talent on the bench and in the bar, and I'm particularly grateful to the members of the Delaware Supreme Court, Chancery Court, and Superior Court, and to the many members of the Delaware Bar who regularly provide their time and talent to our School. I am proud to be associated with the members of the Widener full-time and adjunct faculty who will be part of this program. I'd like to make special note of Widener Professor Larry Hamermesh, one of the people instrumental in putting this program together. Professors Hamermesh, Stilson, and Regan of our full-time faculty will be on the program, and I'm proud of the expertise in this field they bring to our School. Professor Hamermesh has asked me to thank all of you who worked on the program, and, in particular, to thank Chief Justice Veasey for his counseling and assistance at every step in the development of the symposium. Our purpose today is to examine where the Delaware General Corporation Law is headed in the next century. Given its evolution over its first hundred years into one of our most important legal institutions, this is no easy task. Fortunately, we are honored to have with us some of the world's most expert scholars, corporate and government leaders, and judges to help us. It is a privilege for the Widener University School of Law to join the Delaware State Bar Association in presenting this timely program. I'd like now to introduce one of the talented people who made this program a reality, Mr. Craig B. Smith, Chair of the Corporate Law Section of the Delaware State Bar Association
20001 THE NEXT CENTURY OF CORPORATE LAW INTRODUCTION CRAIG B SMITH. CHAIR CORPORATION LAW SECTION OF THE DELAWARE STATE BAR ASSOCIATION MR SMITH: Dean Ray, thank you very much On behalf of the Corporation Law Section of the Delaware State Bar Association, I extend our welcome and good morning to all of you By definition, this Symposium presupposes change. That is both a safe and obvious supposition. We know corporation law will change. But we don,'t know exactly how. Fortunately, over the next day and a half, we will benefit from as accurate a prediction of the future of corporation law as can presently be formulated Unlike some. i do not believe that change is in and of itself necessarily good. Nor do I believe that everyone adapts well to change Indeed, given the pace of change today, particularly in a field such as communications technology, I fear at times we move too fast. We assume change is beneficial, and proceed without due reflection on the implications of the changes thrust upon us, and without regard for the limits on our human capacity to adjust to constant material change in the business of life take great comfort, therefore, that in the changes made to the considerable due diligence. Change typically comes about slowly and as the product of debate and deliberation Still, contemplating this Symposium, I found myself in need of a little reassurance. I started with the most basic of corporate tasks incorporation- something that today is simple, instantaneous and possible thout I I was surprised and I must say a little bit awed by the gravity attached to the incorporation process prior to the enactment in March of 1899 of the Delaware General Corporation Law. It is interesting to review what you had to do to create a Delaware corporation a hundred years ago You started with a certificate of incorporation that had to be signed by at least three persons, two-thirds of whom had to be citizens of Delaware, and which was submitted to an associate judge of the Superior Court in the county in which the corporation was to have its principal office or conduct its principal business. The application could only be submitted during a vacation of the Court, and only if notice had been published in newspaper at least 30 days prior to the subm of the application
2000] THE NEXT CENTURY OF CORPORATE LAW 3 INTRODUCTION CRAIG B. SMITH, CHAIR CORPORATION LAW SECTION OF THE DELAWARE STATE BAR ASSOCIATION - - - - - MR. SMITH: Dean Ray, thank you very much. On behalf of the Corporation Law Section of the Delaware State Bar Association, I extend our welcome and good morning to all of you. By definition, this Symposium presupposes change. That is both a safe and obvious supposition. We know corporation law will change. But we don't know exactly how. Fortunately, over the next day and a half, we will benefit from as accurate a prediction of the future of corporation law as can presently be formulated. Unlike some, I do not believe that change is in and of itself necessarily good. Nor do I believe that everyone adapts well to change. Indeed, given the pace of change today, particularly in a field such as communications technology, I fear at times we move too fast. We assume change is beneficial, and proceed without due reflection on the implications of the changes thrust upon us, and without regard for the limits on our human capacity to adjust to constant material change in the business of life. I take great comfort, therefore, that in the changes made to the Delaware General Corporation Law, there is as a general rule of considerable due diligence. Change typically comes about slowly and as the product of debate and deliberation. Still, contemplating this Symposium, I found myself in need of a little reassurance. I started with the most basic of corporate tasks — incorporation — something that today is simple, instantaneous and possible without lawyers. I was surprised and I must say a little bit awed by the gravity attached to the incorporation process prior to the enactment in March of 1899 of the Delaware General Corporation Law. It is interesting to review what you had to do to create a Delaware corporation a hundred years ago. You started with a certificate of incorporation that had to be signed by at least three persons, two-thirds of whom had to be citizens of Delaware, and which was submitted to an associate judge of the Superior Court in the county in which the corporation was to have its principal office or conduct its principal business. The application could only be submitted during a vacation of the Court, and only if notice had been published in a newspaper at least 30 days prior to the submission of the application
DELAWARE JOURNAL OF CORPORATE LAW Tol. The associate judge was required to determine articles and conditions in the certificate of incorporation were lawful and not the community. If the associate judge made those determinations, then the judge would direct the certificate to be filed in the records of the Superior Court and order the prothonotary to publish in a newspaper for at least three weeks notice that application had been made to grant the certificate of incorporation. If no one appeared and objected and made no showing as to why the certificate should not be granted the associate judge was permitted, at the next term of the court, to direct that the certificate, with the judges endorsement thereon, be filed in the office of the Secretary of State and a copy, certified by the Secretary of State ecorded in the Recorder's office of the county in which the application had been made. Only upon county recordation did the corporate existence commence Today, of course, we do it differently. Anyone with a credit card can log onto the internet and through an incorporating service form a Delaware corporation with the click of a mouse Certainly the process has been simplified. I doubt anything has been oning the requirement that a judge determine at the outset that the content of the certificate of incorporation is lawful and not injurious to the community. And I feel comfortable saying that the judges of our Superior Court do not miss having to pass upon the legality of the provisions in certificates of incorporation. But I wonder how radical a change it must have seemed in 1899 to move away from that procedure? What contemporaneous fears and values, long since abandoned, found expression in those requirements of a century ago? We will face a similar inquiry in the immediate future. The Corporation Law Section has underway a comprehensive review of the Delaware General Corporation Law to determine how the law may be best modified to accommodate modern technology. We are sensitive to increasing demand from corporations for virtual stockholders meetings, for electronic communication of notices of meetings, proxies and other corporate documents, and similar changes to take advantage of cost reductions and accelerated communications made possible by the internet and similar innovations We must confront the impact of technology on communications and commerce in general, and the resultant impact on what business expects from our corporation laws. In the process, we must also re-examine some long-standing corporate principles that may stand in the way of change Ultimately, we must decide whether those principles have continued vitality d, if so, are they sufficiently important to the integrity of our corporation law that we must resist the pressure for change? Can Delaware resist such pressure and maintain its pre-eminence in corporate law?
4 DELAWARE JOURNAL OF CORPORATE LAW [Vol. 25 The associate judge was required to determine that the objects, articles and conditions in the certificate of incorporation were lawful and not injurious to the community. If the associate judge made those determinations, then the judge would direct the certificate to be filed in the records of the Superior Court and order the Prothonotary to publish in a newspaper for at least three weeks notice that application had been made to grant the certificate of incorporation. If no one appeared and objected and made no showing as to why the certificate should not be granted, the associate judge was permitted, at the next term of the court, to direct that the certificate, with the judge’s endorsement thereon, be filed in the office of the Secretary of State and a copy, certified by the Secretary of State, recorded in the Recorder’s office of the county in which the application had been made. Only upon county recordation did the corporate existence commence. Today, of course, we do it differently. Anyone with a credit card can log onto the internet and through an incorporating service form a Delaware corporation with the click of a mouse. Certainly the process has been simplified. I doubt anything has been lost by abandoning the requirement that a judge determine at the outset that the content of the certificate of incorporation is lawful and not injurious to the community. And I feel comfortable saying that the judges of our Superior Court do not miss having to pass upon the legality of the provisions in certificates of incorporation. But I wonder how radical a change it must have seemed in 1899 to move away from that procedure? What contemporaneous fears and values, long since abandoned, found expression in those requirements of a century ago? We will face a similar inquiry in the immediate future. The Corporation Law Section has underway a comprehensive review of the Delaware General Corporation Law to determine how the law may be best modified to accommodate modern technology. We are sensitive to increasing demand from corporations for virtual stockholders’ meetings, for electronic communication of notices of meetings, proxies and other corporate documents, and similar changes to take advantage of cost reductions and accelerated communications made possible by the internet and similar innovations. We must confront the impact of technology on communications and commerce in general, and the resultant impact on what business expects from our corporation laws. In the process, we must also re-examine some long-standing corporate principles that may stand in the way of change. Ultimately, we must decide whether those principles have continued vitality and, if so, are they sufficiently important to the integrity of our corporation law that we must resist the pressure for change? Can Delaware resist such pressure and maintain its pre-eminence in corporate law?
20001 THE NEXT CENTURY OF CORPORATE LAW For example, today a director must attend board meetings in person even if the attendance is only by an electronic means that allows the director to hear and be heard by all other directors. Are we willing to substitute an on-line chat room format for directors' meetings? If not, why not? Is our resistance well-founded or based on out-moded traditions and values of marginal importance, values that, like those that 100 years ago made incorporation a judicial matter, embody once legitimate concerns that developments in our society have rendered of little or no consequence? And what of globalization? Delaware corporations are operating all over the world. Increasingly, they are being formed by persons from foreign countries to conduct business in those countries not in Delaware or even the United States. At what point, then, will Delaware begin to feel pressure to modify its corporation laws to accommodate the business practices, for example shares registered in bearer form, of other cultures? Thus, I have no doubt that corporation law in the twenty-first century will involve material changes that will challenge some of the fundamental Law- principles some of us may hold sacrosanct I look forward, as I hope you do, to the next day and a half and the insights of our speakers into the challenges the future likely holds for the Delaware General Corporation Law, the benefits that change promises to bring about, the potential dangers to our corporation law that may accompany change, and just how difficult, or easy, or wise, change may be Thank you very much
2000] THE NEXT CENTURY OF CORPORATE LAW 5 For example, today a director must attend board meetings in person, even if the attendance is only by an electronic means that allows the director to hear and be heard by all other directors. Are we willing to substitute an on-line chat room format for directors’ meetings? If not, why not? Is our resistance well-founded, or based on out-moded traditions and values of marginal importance; values that, like those that 100 years ago made incorporation a judicial matter, embody once legitimate concerns that developments in our society have rendered of little or no consequence? And what of globalization? Delaware corporations are operating all over the world. Increasingly, they are being formed by persons from foreign countries to conduct business in those countries, not in Delaware or even the United States. At what point, then, will Delaware begin to feel pressure to modify its corporation laws to accommodate the business practices, for example shares registered in bearer form, of other cultures? Thus, I have no doubt that corporation law in the twenty-first century will involve material changes that will challenge some of the fundamental principles behind various provisions in the Delaware General Corporation Law — principles some of us may hold sacrosanct. I look forward, as I hope you do, to the next day and a half and the insights of our speakers into the challenges the future likely holds for the Delaware General Corporation Law, the benefits that change promises to bring about, the potential dangers to our corporation law that may accompany change, and just how difficult, or easy, or wise, change may be. Thank you very much
DELAWARE JOURNAL OF CORPORATE LAW Vo.25 WHAT BUSINESS WILL LOOK FOR IN CORPORATE LAW IN THE TWENTY-FIRST CENTURY RICHARD J. AGNICH. Senior Vice-President Texas Instruments, Incorporated STEVEN F. GOLDSTONE. Chairman and Chief Executive Officer. RJR Nabisco. Inc THE HONORABLE JACK B. JACOBS Vice-Chancellor, Court of Chancery PIERRE S duPONT, IV, Esquire ichards, Layton Finger MICHAEL D. GOLDMAN, Esqui Potter. Anderson corroon MR. GOLDMAN: Thank you, Craig. Craig has told us about the first hundred years and we 'll try to run through the next hundred years. W have a very distinguished panel with us today and let me introduce them to you. To my immediate right, we have Steven F. Goldstone. Steve is currently chairman and CEO of RJR Nabisco. In another life, Steve was a partner in the prestigious New York firm of Davis, Polk Wardwell, and during the 80s he had major roles in a number of the nations largest battles for corporate control. In early 1995, he became the general counsel to RJR Nabisco. He then became the chief executive officer in October of 1995 Steve will offer us his views on the next century from the perspective of both a Wall Street lawyer and a CEO, which is kind of unusual To my immediate left is Richard Agnich. Dick has been senior vice-president and general counsel of Texas Instruments since 1988. He also served as secretary of the board of directors and has dealt with significant corporate governance issues. Dick is president of the Association of General Counsel and has served on the boards of the united States Committee of the pacific Basin Economic Council that's a tou one -and the u.s. Korean business Council. he's also a member of Advisory board of the International and Comparative Law Center
6 DELAWARE JOURNAL OF CORPORATE LAW [Vol. 25 WHAT BUSINESS WILL LOOK FOR IN CORPORATE LAW IN THE TWENTY-FIRST CENTURY Presenters RICHARD J. AGNICH, Senior Vice-President Texas Instruments, Incorporated STEVEN F. GOLDSTONE, Chairman and Chief Executive Officer, RJR Nabisco, Inc. Commentators THE HONORABLE JACK B. JACOBS Vice-Chancellor, Court of Chancery PIERRE S. duPONT, IV, Esquire Richards, Layton & Finger MICHAEL D. GOLDMAN, Esquire Potter, Anderson & Corroon - - - - - MR. GOLDMAN: Thank you, Craig. Craig has told us about the first hundred years and we'll try to run through the next hundred years. We have a very distinguished panel with us today and let me introduce them to you. To my immediate right, we have Steven F. Goldstone. Steve is currently chairman and CEO of RJR Nabisco. In another life, Steve was a partner in the prestigious New York firm of Davis, Polk & Wardwell, and during the '80s he had major roles in a number of the nation's largest battles for corporate control. In early 1995, he became the general counsel to RJR Nabisco. He then became the chief executive officer in October of 1995. Steve will offer us his views on the next century from the perspective of both a Wall Street lawyer and a CEO, which is kind of unusual. To my immediate left is Richard Agnich. Dick has been senior vice-president and general counsel of Texas Instruments since 1988. He also served as secretary of the board of directors and has dealt with significant corporate governance issues. Dick is president of the Association of General Counsel and has served on the boards of the United States Committee of the Pacific Basin Economic Council — that's a tough one — and the U.S. Korean Business Council. He's also a member of the Advisory Board of the International and Comparative Law Center
THE NEXT CENTURY OF CORPORATE LAW Today he would give us some provocative remarks on the necessary prerequisites for survival of global corporations Two seats down on my right, Pierre s. dupont, Iv, one of our commentators. Pete is the former two-term governor of our state. He also served three terms in the United States House of Representatives. Milton Freeman has correctly lauded Pete as one of the few politicians in this country who has"consistently stuck to principles. "Pete now practices law with the prestigious firm of Richards, Layton Finger in Wilmington. He is also Policy Chairman of the National Center for Policy Analysis To my far right, the Honorable Jack B. Jacobs, familiar to us all, Vice-Chancellor of the Court of Chancery of the state of Delaware. Jack and I began our careers as law clerks to the Court of Chancery in 1967 a few weeks ago- working for the Honorable william Duffy who then presided as Chancellor. Jack then practiced with the prestigious Wilmington firm of Young, Conaway, Stargatt Taylor In 1985, I believe, he became Vice-Chancellor and during the takeover years, he wrote some of the most significant decisions of that time some of which i won some of which i lost vanhoe y. New mont I ovC v. Paramount. He frequently speaks, as we know, at functions for the American Bar Association, the delaware Bar Association and for Tulane University at its corporate law institute which many of you here have attended All right. By way of introduction, in 1996, this little dinky brewing company, Spring Street Brewing Company, became the first entity to have a direct public offering on the internet. It was a very inexpensive situation In 1999, as we know, technology stocks helped the Dow pass 11, 000. This is also the year of the Euro dollar uniting fifteen European currencies Richard Grasso, chairman of the New York Stock Exchange, has recently acknowledged that the exchange must plan to directly trade foreign stocks no more DRs, in order to keep pace with the global economy So where are we going with all this? Eileen Filliben of my office and myself, mostly Eileen, have prepared a piece that is part of your symposium materials entitled "Corporate Governance, Current Trends and Likely Developments for the 2lst Century. It's our crystal ball look a hundred years out. So who can tell that were wrong? We surveyed the current trends in corporate governance and theorize on the likely impact of those trends irst, technology is reshaping the way companies raise capital interact with suppliers and relate to investors. Small companies are now raising public capital with direct offerings on the internet -QvC Network, Inc. v. Paramount Communications Inc, 635 A2d 1245(Del. Ch
2000] THE NEXT CENTURY OF CORPORATE LAW 7 1 Ivanhoe Partners v. Newmont Mining Corp., 533 A.2d 585 (Del. Ch. 1987). 2QVC Network, Inc. v. Paramount Communications Inc., 635 A.2d 1245 (Del. Ch. 1993). Today he would give us some provocative remarks on the necessary prerequisites for survival of global corporations. Two seats down on my right, Pierre S. duPont, IV, one of our commentators. Pete is the former two-term governor of our state. He also served three terms in the United States House of Representatives. Milton Freeman has correctly lauded Pete as one of the few politicians in this country who has "consistently stuck to principles." Pete now practices law with the prestigious firm of Richards, Layton & Finger in Wilmington. He is also Policy Chairman of the National Center for Policy Analysis. To my far right, the Honorable Jack B. Jacobs, familiar to us all, Vice-Chancellor of the Court of Chancery of the state of Delaware. Jack and I began our careers as law clerks to the Court of Chancery in 1967 — a few weeks ago — working for the Honorable William Duffy who then presided as Chancellor. Jack then practiced with the prestigious Wilmington firm of Young, Conaway, Stargatt & Taylor. In 1985, I believe, he became Vice-Chancellor and during the takeover years, he wrote some of the most significant decisions of that time — some of which I won, some of which I lost — Ivanhoe v. Newmont, 1 QVC v. Paramount. 2 He frequently speaks, as we know, at functions for the American Bar Association, the Delaware Bar Association and for Tulane University at its corporate law institute which many of you here have attended. All right. By way of introduction, in 1996, this little dinky brewing company, Spring Street Brewing Company, became the first entity to have a direct public offering on the internet. It was a very inexpensive situation. In 1999, as we know, technology stocks helped the Dow pass 11,000. This is also the year of the Euro dollar uniting fifteen European currencies. Richard Grasso, chairman of the New York Stock Exchange, has recently acknowledged that the exchange must plan to directly trade foreign stocks, no more DRs, in order to keep pace with the global economy. So where are we going with all this? Eileen Filliben of my office and myself, mostly Eileen, have prepared a piece that is part of your symposium materials entitled "Corporate Governance, Current Trends and Likely Developments for the 21st Century." It's our crystal ball look a hundred years out. So who can tell that we're wrong? We surveyed the current trends in corporate governance and theorize on the likely impact of those trends. First, technology is reshaping the way companies raise capital, interact with suppliers and relate to investors. Small companies are now raising public capital with direct offerings on the internet
DELAWARE JOURNAL OF CORPORATE LAW Vo.25 Now. as we said the first one was in 96. There were 35 in 97 and over 250 in 98. Electronic commerce is exploding. If you've gone on Ebay whatever, $7 billion over the internet in 1999 in goods traded. $327 billion projected for 2020. Companies are now using the internet for annual eports and proxies. So you've got a technology explosion Second, you've got globalization. The world is shrinking. Country oundaries are being replaced by boundaries of groups of people who are tinguished by their buying preferences. Nationalism is giving way to dependence and economic efficiencies. The EMU, European Monetary Union, is being used to unite the currencies of the European nations. The Euro dollar is expected to compete directly with the yen and the American dollar And in addition to all this, there is a push for a European company statute to allow companies from different member states to merge. The third prong to this is corporate promoters are rejecting traditional corporate forms today in favor of those providing for maximum potential private ordering. Promoters of these new entities, the limited partnership ity company, are writing fiduciary duties out of their agreements and the Delaware Court of Chancery is enforcing those corporate promoters worldwide will seek a new form of entity that will afford maximum flexibility and simplicity. The uniform entity will expand the llC concept and will further meet promoters needs. Private ordering will replace statutory requisites and common law duties. As the late Judge Henry Friendly of New York once observed, "The business of business is business. "It's not fiduciary duties and it's not regulation Unit holders will be willing to concede almost all control in exch for higher rates of return. The bucks. The entity contract will structure all stakeholder relationships and define the duties, if any, of the managers. It may eliminate all meetings and elections. Conflicts will be resolved by interpreting the contract We submit, and this is directed to Delaware, that the jurisdiction that creates, sustains and supports this universal entity will be the corporate governance leader not only in this country but worldwide. It's going to be one economIc, one corporate situation So much for my thoughts and musings. Let's hear what the real experts that you came to hear have to say about the next hundred Steve Goldstone will begin by telling us what he believes business will look for in the twenty-first century MR GOLDSTONE: Thank you, Mike. I'll tell you what I think if you give me the microphone
8 DELAWARE JOURNAL OF CORPORATE LAW [Vol. 25 Now, as we said the first one was in '96. There were 35 in '97 and over 250 in '98. Electronic commerce is exploding. If you've gone on Ebay, whatever, $7 billion over the internet in 1999 in goods traded. $327 billion projected for 2020. Companies are now using the internet for annual reports and proxies. So you've got a technology explosion. Second, you've got globalization. The world is shrinking. Country boundaries are being replaced by boundaries of groups of people who are distinguished by their buying preferences. Nationalism is giving way to interdependence and economic efficiencies. The EMU, European Monetary Union, is being used to unite the currencies of the European nations. The Euro dollar is expected to compete directly with the yen and the American dollar. And in addition to all this, there is a push for a European company statute to allow companies from different member states to merge. The third prong to this is corporate promoters are rejecting traditional corporate forms today in favor of those providing for maximum potential private ordering. Promoters of these new entities, the limited partnership and the limited liability company, are writing fiduciary duties out of their agreements and the Delaware Court of Chancery is enforcing those agreements. Among other things, Eileen and I have predicted the following: That corporate promoters worldwide will seek a new form of entity that will afford maximum flexibility and simplicity. The uniform entity will expand the LLC concept and will further meet promoters' needs. Private ordering will replace statutory requisites and common law duties. As the late Judge Henry Friendly of New York once observed, "The business of business is business." It's not fiduciary duties and it's not regulation. Unit holders will be willing to concede almost all control in exchange for higher rates of return. The bucks. The entity contract will structure all stakeholder relationships and define the duties, if any, of the managers. It may eliminate all meetings and elections. Conflicts will be resolved by interpreting the contract. We submit, and this is directed to Delaware, that the jurisdiction that creates, sustains and supports this universal entity will be the corporate governance leader not only in this country but worldwide. It's going to be one economic, one corporate situation. So much for my thoughts and musings. Let's hear what the real experts that you came to hear have to say about the next hundred years. Steve Goldstone will begin by telling us what he believes business will look for in the twenty-first century. MR. GOLDSTONE: Thank you, Mike. I'll tell you what I think if you give me the microphone
2000 THE NEXT CENTURY OF CORPORATE LAW Thanks a lot for having me here today. In my former life as a lawyer, I had a lot of happy, or let me say some happy, a lot of challenging moments advising clients with transactions under Delaware law. But I dont want to talk to you really from my perspective as a former lawyer, former practicing lawyer. More a little bit from my perspective as head of RjR And I also want to caution you, I'm not going to make predictions about what's going to happen over a hundred years. I really want to talk about, in my own view based on my experience over the last few years somewhat of a fundamental concept. And really it goes to this question of the flexibility that we all cherish so much in the law and in the common law versus a businessperson s need for clarity and predictability In my few years, just to back up for a second, at RR Nabisco, if there is one thing that struck me, it probably shouldn't have that much but it did and it may be because of RR Nabisco's unique situation, was the werfully persuasive influence of lawyers in the business world in the United States. Now, I guess that's nothing really new, but because I think if you may have heard or read the DeToqueville in his travels in America, he said that the power of lawyers envelope the whole of society penetrating each component class and constantly working its secret upon its unconscious patient. Perhaps because it worked in secret or they worked in secret, DeToqueville also noted that " the power of lawyers is little dreaded and hardly noticed Well, that, in my view, has changed dramatically to anybody who is a corporate director today or who runs a public corporation today. That ower has come out of the closet in the latter part of this century. And the question in my view is will we be better able to cope with this power, this pervasive influence in And as for the globalization that Mike just described in the twen first century, I think the question is will international business and corporate elationships follow worldwide the American pattern or will the United States have to adjust? And I think just listening to Mike talk about that new orporate form and how set out it will be, how concrete it will be, how predictable, how clear it will be, I think goes to this kind of question I'm asking. Because, certainly, from a businessman,s point of view, the wide variations in corporate and business law, particularly between the U.S. and the rest of the world will make less and less sense. And I'm not even talking about our tort system in the United States. I'm talking about our corporate law system It's bad enough dealing with the multiple legal and regulatory systems just in this country, but the problem is obviously exacerbated as transactions involve even greater numbers of jurisdictions around the world and through worldwide mergers, significant numbers of shareholders throughout the
2000] THE NEXT CENTURY OF CORPORATE LAW 9 Thanks a lot for having me here today. In my former life as a lawyer, I had a lot of happy, or let me say some happy, a lot of challenging moments advising clients with transactions under Delaware law. But I don't want to talk to you really from my perspective as a former lawyer, former practicing lawyer. More a little bit from my perspective as head of RJR Nabisco. And I also want to caution you, I'm not going to make predictions about what's going to happen over a hundred years. I really want to talk about, in my own view based on my experience over the last few years, somewhat of a fundamental concept. And really it goes to this question of the flexibility that we all cherish so much in the law and in the common law versus a businessperson's need for clarity and predictability. In my few years, just to back up for a second, at RJR Nabisco, if there is one thing that struck me, it probably shouldn't have that much but it did and it may be because of RJR Nabisco's unique situation, was the powerfully persuasive influence of lawyers in the business world in the United States. Now, I guess that's nothing really new, but because I think if you may have heard or read the DeToqueville in his travels in America, he said that "the power of lawyers envelope the whole of society penetrating each component class and constantly working its secret upon its unconscious patient." Perhaps because it worked in secret or they worked in secret, DeToqueville also noted that "the power of lawyers is little dreaded and hardly noticed." Well, that, in my view, has changed dramatically to anybody who is a corporate director today or who runs a public corporation today. That power has come out of the closet in the latter part of this century. And the question in my view is will we be better able to cope with this power, this pervasive influence in the next century? And as for the globalization that Mike just described in the twentyfirst century, I think the question is will international business and corporate relationships follow worldwide the American pattern or will the United States have to adjust? And I think just listening to Mike talk about that new corporate form and how set out it will be, how concrete it will be, how predictable, how clear it will be, I think goes to this kind of question I'm asking. Because, certainly, from a businessman's point of view, the wide variations in corporate and business law, particularly between the U.S. and the rest of the world, will make less and less sense. And I'm not even talking about our tort system in the United States. I'm talking about our corporate law system. It's bad enough dealing with the multiple legal and regulatory systems just in this country, but the problem is obviously exacerbated as transactions involve even greater numbers of jurisdictions around the world and through worldwide mergers, significant numbers of shareholders throughout the world
DELAWARE JOURNAL OF CORPORATE LAW Vo.25 Now, here I come back to this point about flexibility because we all learned in law school about the wondrous flexibility and adaptability of the common law and how it was particularly suited to fast-changing economic and business needs. And as a lawyer, I could well appreciate what we were all taught about the advantages of a common law system But in the last few years, with my businesspersons hat on, I have to wonder really at what cost are we getting all this flexibility Now, I'm not a scholar of comparative law, but as I contrast the five-to-ten-page contracts that RJR Nabisco's overseas contracts operating under the civil law often enter into with the fifty or seventy or a hundred page contract that's so typical of transactions here, I wonder whether the advantages of flexibility are worth the price of ever-increasing length and complexity as all of our bright, young lawyers add yet one more clause to their standard forms to deal with the latest pronouncement of Vice- Chancellor Jacobs or Chief Justice Veasey or all of our other colleagues It was very exciting for me to be a takeover lawyer in the 80s and I obviously can see it's still exciting to be in the90s. The development of he law in the Delaware courts in the takeover area was exciting to be part of. Issues relating to poison pills and options and auctions and boards' duties in the takeover context were intellectually interesting and a challenge to any advocate. And I very much recall, like Talmudic scholars, lawyers pouring over every word of the latest Delaware case to try to decipher what those words might portend for the next takeover battle and the advice they'd be asked to give as to whether a particular transaction or action would or would not pass muster under Paramount or Revlon or Unocal.5 And the list of cases was still getting longer when I stopped worrying about them, or thought I was going to stop worrying about them. But somehow when you hief executive and a corporate director, being part of the developing law is not quite as much fun as when you were practicing law Just looking at mergers and acquisitions in the U. K, and I know you're all familiar with it and I won,'t dwell on it, but the rules really are pretty clear and straightforward. You know, English lawyers are always quick to point out that takeovers are governed not by law but by regulation and whatever you call it, the U.K. code together with the panel that supervises it acts as a British version of civil law. And the principle and rules that govern takeovers for the most part are very clear First and foremost, the target company cannot take any action that would"frustrate a bid, "1.e, no poison pills, no ESOPs, no stock repurchase Paramount Communications Inc v QVC Network Inc, 637 A 2d 34(Del
10 DELAWARE JOURNAL OF CORPORATE LAW [Vol. 25 3Paramount Communications Inc. v. QVC Network Inc., 637 A.2d 34 (Del. 1994). 4Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986). 5Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985). Now, here I come back to this point about flexibility because we all learned in law school about the wondrous flexibility and adaptability of the common law and how it was particularly suited to fast-changing economic and business needs. And as a lawyer, I could well appreciate what we were all taught about the advantages of a common law system. But in the last few years, with my businessperson's hat on, I have to wonder really at what cost are we getting all this flexibility. Now, I'm not a scholar of comparative law, but as I contrast the five-to-ten-page contracts that RJR Nabisco's overseas contracts operating under the civil law often enter into with the fifty or seventy or a hundred page contract that's so typical of transactions here, I wonder whether the advantages of flexibility are worth the price of ever-increasing length and complexity as all of our bright, young lawyers add yet one more clause to their standard forms to deal with the latest pronouncement of ViceChancellor Jacobs or Chief Justice Veasey or all of our other colleagues. It was very exciting for me to be a takeover lawyer in the '80s and I obviously can see it's still exciting to be in the '90s. The development of the law in the Delaware courts in the takeover area was exciting to be part of. Issues relating to poison pills and options and auctions and boards' duties in the takeover context were intellectually interesting and a challenge to any advocate. And I very much recall, like Talmudic scholars, lawyers pouring over every word of the latest Delaware case to try to decipher what those words might portend for the next takeover battle and the advice they'd be asked to give as to whether a particular transaction or action would or would not pass muster under Paramount3 or Revlon4 or Unocal. 5 And the list of cases was still getting longer when I stopped worrying about them, or thought I was going to stop worrying about them. But somehow when you become a chief executive and a corporate director, being part of the developing law is not quite as much fun as when you were practicing law. Just looking at mergers and acquisitions in the U.K., and I know you're all familiar with it and I won't dwell on it, but the rules really are pretty clear and straightforward. You know, English lawyers are always quick to point out that takeovers are governed not by law but by regulation, and whatever you call it, the U.K. code together with the panel that supervises it acts as a British version of civil law. And the principle and rules that govern takeovers for the most part are very clear. First and foremost, the target company cannot take any action that would "frustrate a bid," i.e., no poison pills, no ESOPs, no stock repurchase