Fact and Fiction in Corporate Law and Governance

INTRODUCTION..................................................................................................... 1325 I. CONTRACTING AT THE IPO STAGE ................................................................. 1331 A. IPO Charters and Takeover Defenses ...................................................... 1332 B. Innovation, Diversity, and the “Plain Vanilla” Charter .......................... 1336 II. STATE COMPETITION TO PROVIDE CORPORATE LAW ..................................... 1340 III. GOVERNANCE ADJUSTMENTS ONCE A COMPANY GOES PUBLIC: THE “MIDSTREAM” STAGE .................................................................................... 1346 A. Corporate Governance from the Mid-1980s to the Mid-2000s ................ 1348 1. Takeover defenses ............................................................................. 1349 a. Poison pills .................................................................................. 1350 b. Staggered (or “classified”) boards ............................................. 1352 c. Other takeover defenses ............................................................... 1355 2. Board independence .......................................................................... 1357 B. Corporate Governance Since the Mid-2000s ........................................... 1359 IV. A BRIEF DETOUR: ONGOING MISUNDERSTANDINGS REGARDING TAKEOVER DEFENSES AND GOVERNANCE INDICES ........................................ 1362 A. Elements with No Impact on Management Entrenchment ........................ 1365 B. Elements with No Impact on Firms with an Effective Staggered Board ... 1365 C. Elements with an Impact Only Under Limited Circumstances ................. 1366 D. Elements That Are Unrelated to Entrenchment and Affirmatively Good for Corporate Governance ....................................................................... 1367 E. Use of Governance Indices in Other Research ........................................ 1367 INTERPRETATION, IMPLICATIONS, AND CONCLUSION ........................................... 1369