|William B. Chandler III|
By Jenny Chung C’12
In delivering the Institute for Law and Economics’ (ILE) Distinguished Jurist Lecture at Penn Law on Tuesday, October 25, William B. Chandler III, recently Chancellor to the Delaware Court of Chancery, highlighted the pivotal roles lawyers and legal scholars play in guiding the development of corporate law.
Addressing faculty, students, and jurists present, Chandler, now a partner at the firm Wilson Sonsini Goodrich & Rosati who served for 22 years on the Delaware Court of Chancery - 14 as Chancellor and eight as Vice Chancellor – also likened the development of corporate law to the gradual formation of the Grand Canyon.
Outlining the history of Delaware corporate law, Chandler explained that Delaware rose to prominence as a state for incorporation following changes to New Jersey’s corporate law in the early 20th century. As a result, Delaware was well-positioned to capture disaffected corporations looking to evade new and restrictive measures.
“The later rise of Delaware corporations was much like the uplift of the Colorado plateau [to the birth of the Grand Canyon],” Chandler said. “It put Delaware directly in the path of the ‘river’ of corporate law issues.”
Further extending the metaphor, Chandler characterized the evolution of corporate law as a symbiotic process akin to erosion along a riverbed.
“The river may cut through and shape the rock, but the rock contains and holds the river,” he said. “So too with Delaware corporate law—the doctrine contains and holds issues and participants even as they cut and form the doctrine.”
Chandler then proceeded to discuss the shareholder rights plan, also termed the “poison pill,” a strategy intended to ensure that a given corporation’s board of directors retain a role in the tender offer process. Validated by the Delaware Supreme Court in 1985, the plan has evolved considerably since then: while the pill’s initial formulation entailed a 20 percent ownership trigger, permitting activation of the plan once a single entity or group acquires 20 percent of company stock, the Court later upheld pills with 15 and 4.99 percent triggers, respectively.
Much as the pills’ trigger levels have changed over the past two decades, Chandler said, so too has the definition of what constitutes “stock” with regard to reaching the trigger level. Both phenomena illustrate the mutable nature of financial markets, which have since witnessed concerns surrounding derivative pills and the possibility of potential acquirers attempting to redeem a pill by replacing the board of directors who had adopted it.
He cited academia as another pivotal influence, adding that that the Chancery Court has “been able to make use of academic criticism in large part due to the fact that we have an abundance of academic commentary,” even, on occasion, receiving it “in real time on the very cases we’ve just decided or are yet to decide.”
“There are scholars in the corporate river writing extensively on topics before the Court,” he said. “Chancery judges read and consider these timely papers.”
Chandler issued over 1000 opinions and has been recognized as one of the country's most influential judges in the field of corporate law. According to Chandler, the involvement of both market players and legal scholars in doctrinal development places judges in a “precarious” position which requires them to alter market conditions by influencing corporate actors while attending to the particularities of the immediate case.
“In this way, judicial opinions in the adversarial common law process are an imprecise way to form judicial doctrine,” he said. “Judges are rightly focused on just the facts of the parties before them… trying to construct broad doctrine in the abstract is far more dangerous.”
“If too many cases result in a gaping gash in the wall of the canyon…there would be a materially increased risk that the canyon itself might collapse, its structural integrity compromised irretrievably,” Chandler explained, adding that the judiciary directs the evolution of doctrine on the basis of “parties’ agreements, academic insights and a rich body of precedent.”
In his introductory remarks, Michael Wachter, the William B. Johnson Prof. of Law and Economics at Penn Law and Co-Director of ILE, emphasized the far-reaching influence of the Delaware Chancery Court, observing that “Delaware Chancery and Supreme Courts have made Delaware corporate law America’s corporate law and the model for the rest of the world.”
Wachter noted, “Some say the business of America is business - that’s poetic license and a simplification,” he said. “But it’s not a simplification to say that the chancery court is America’s business trial court and that Chancellor Chandler has led that court with acuity, dignity, modesty and great distinction for 14 years.”
In 2011 Adjunct Professor of Law Leo Strine L’88 succeeded Chandler as Chancellor of the Delaware Court of Chancery; Strine previously served as Vice Chancellor of the Court.