Recent Developments in Delaware’s Corporate Law

Michal Barzuza and Leo Strine
March 19, 2024

Former Delaware Supreme Court Chief Justice Leo E. Strine Jr. speaks with UVA Law professor Michal Barzuza, arguing that businesses shouldn't be political echo chambers. The event was sponsored by the John W. Glynn Jr. Law & Business Program.


MICHAL BARZUZA: Thank you all for coming. It's a great, great pleasure to have here former Chief Justice of Delaware Supreme Court, former chancellor of the chancery court of counsel Wachtell Lipton, the one and only Leo Strine, who has shaped Delaware corporate law. Has written some of the most important decisions. Has written also some very elaborated and clear decisions that provided guidance with respect to Delaware law, its applications, guidance to firms guidance to counsels. Has published articles more than most of us.

While doing that has, presented in an endless number of conferences. Has been always highly extremely engaged and ready for engagement. And has also taught his son's soccer team and did lots of other activities while doing all of that. And I'm-- for me-- I'm really curious to hear from Leo. His views, his thoughts now, after he stepped off the bench and while there are some developments going on in corporate law and with you in Delaware. Exactly. So thank you so much for coming.

LEO STRINE: That's great to be-- and I met your wonderful professor, and you're really so lucky to be at this great institution with such distinguished faculty. And see an eminence in the back row who knows about-- more about securities law than I could ever learn in a lifetime. And it's just a great institution. I said-- I took a picture of the thing coming in, because one of my best friends is a double Wahoo. He went to UVA undergrad and law school.

And then my predecessor and dear friend is a Chief Justice-- Myron Steele is a triple Wahoo. He went to the judicial LLM program. And you can just ruin his-- you can ruin any dinner or you can make it fun for everybody, but him. By just-- if UVA lost in-- he doesn't just follow basketball. He's like the follows the baseball team or whatever he calls. He disparages. I grew up in Maryland and he calls the Terps, he's called that a commuter school. And so-- but it's great to be here and with you all.

MICHAL BARZUZA: Wonderful. Great. So we will have it in a conversational way. And first between us and then we'll open it to a large conversation. And you guys will be able to ask questions and-- great. So we'll start with the elephant in the room, which is what's happening now? Suddenly there is more-- I don't know criticism or attacks on Delaware. Even though I have to say, I don't think there's a significant change in terms of corporations. What I've seen, it's not there are lots of foreign corporations. It's not that. But it's more a public criticism or attacks that-- Yeah.

LEO STRINE: Yeah. No. I think people-- I think one of Delaware's strength is being thick skinned. And if you've been on the Delaware Court of Chancery or the Delaware Supreme Court, as long as I've been following law, you've had to be thick skinned. And it's one of Delaware's strengths that you can be the sort of judges who say, well, we're in the room. All the judges' jokes are funny in the room, and all the opinions are wise. But when people go in the hallway, they now tell you a story about this. I would-- one of the advantages of Delaware-- Delaware has many advantages, but geographics is one of them.

Honestly if we weren't right on the train line-- if we were in Charlottesville, lovely place. Not the easiest to get, a 4 and 1/2 hour car drive. I didn't lightly take a car, but how else do you get here? Then you have to get through DC, it's hard. If Delaware was Charlottesville we wouldn't be Delaware. The fact that people could get on a train from DC or New York, and being-- get off the train not even have to get in a car, or do a 5-minute walk to the courthouse, and then be back in their office. Yeah, that's an advantage.

So I would say to litigators-- most litigators want to get to where they're going to be the night before. The last thing you want to do is even if it's something like DC, and you're coming from Delaware, usually when you go to your hotel room be there, prepare it's-- and make sure you're in time. So I would say to the lawyers, when do you want to have argument? And because in Delaware they say, It's-- you can fly in from Chicago. The Philadelphia airport takes 20 minute ride to the Wilmington courthouse.

Do you want to have the argument, say 9:30 in the morning? Because then you could make a 2 o'clock flight. Or do you want to come in-- you want to have it early afternoon? When are you all coming in? Or whatever you're-- whatever you want. I couldn't get an answer. I'm like I really want to what you want. And if I say 5:30 in the afternoon you'll say, yes, your honor. And then you'll go out in the hallway and curse me. And you should. But what you need to do, I really want to hear. Most judges over time-- Bill Allen, my mentor and late friend who I miss all the time.

One of the things and [INAUDIBLE] Myron Steele-- is, you hear from everywhere. The plaintiff's lawyers-- If you think a MAC clause going into an expedited case is a coupon for a burger at McDonald's you're done. When you have an expedited case, what you can really learn about an expedited case, is about that particular case. So it's always been one of the strengths of people in Delaware I think, to realize that hearing everybody's perspective in a non case specific way, understanding what's coming about-- I was just with my friend-- Peter Lyons-- who if some of you may be lucky enough to take Peter's class, he's great.

Part of where I first met Peter is, I would spend time with the transactional lawyers, the ones who weren't litigators. Because the transactional lawyers did not care about offending me. And I would go to lunch at a conference at Tulane at dinner. Peter Lyons, Eileen Nugent, Faiza Saeed, Rob Spatt-- all these people-- Rob Kindler-- they're all telling me how I messed up the world. I could go in a room and cry. I don't always agree with them but I learned. And so what I say is, Marty Lipton, who started a firm-- Marty Lipton wrote a-- gave a quote in the 1980s saying that Bill Allen, Chancellor Allen and those judges in Delaware were ruining the American economy.

MICHAL BARZUZA: They went after intercourse? In the intercourse case. Yeah. So--

LEO STRINE: And so what I'm saying is, telling the-- and he wrote a-- he wrote an article. He wrote a memo to clients saying to reincorporate and then it was in the Wall Street Journal. So the idea, and in the 1970s by the way, there was a professor at Yale who called the state of Delaware something that you could not call it today, because it would be seen as-- and probably rightly so as racist.

He called the state of Delaware the pygmy state. Ralph Nader wrote a book in the early 1970s, saying that how is this state this little state have all these corporations. So when I hear people saying there's never been heat in the kitchen, maybe because they maybe some of them haven't ever cooked with except on a microwave and they don't understand what a kitchen is like.

And so with responsibility becomes accountability. And I think at least the best of the tradition is to realize, yes, you have judicial independence. You have a 12-year term. We have a bipartisan judiciary.

But you're not immune from criticism. Understanding that part of what is the good balance and the magic of the American system is the backbone disclosure regime in terms of public companies that sets up by the federal securities laws, so there's a high level of information, the use of fiduciary duties to police an enabling statute, and the benefits of the careful case-by-case learning so that you can make course corrections by not having overbroad things.

But if you're not going to listen and you're not going to make course corrections, or you're going to say to people like, we don't want to hear from you, that's not the Delaware tradition. So what I would say is this moment, I'm not saying that there aren't legitimate-- it's not piquant. It certainly is. But this is not the first time there have been piquant moments. It's part of what happens when there's doctrinal development.

And we should get the good professor, talking about another legend, seat, is that it comes with this national responsibility, which we have to earn over time, because corporations really do choose where they go. We've dealt with the inversion trends. We don't gate them out and other things like that.

That if you want to be where we are, then it's incumbent upon us to listen to good faith input, to not be thin skinned, and to reflect on it. Or I don't think that the tradition will be maintained, but I'm confident that it will. But right now, there is a lot of concern. And there are some things up for grabs that I think a lot of people probably thought were settled over time.


LEO STRINE: And that's what has to be discussed. And it's not limited to Mr. Musk.


LEO STRINE: If it were limited to Mr. Musk, it would be simple because there's no one in Delaware. Just like when Marty did things, people said, nobody in Delaware is scared of Marty. Nobody in Delaware is scared of Elon Musk. And not saying he doesn't have a legitimate right to say what he has to say. But no one's going to be intimidated by him.

And actually, sometimes, when people have an outsized personality and they do something like that, it can actually have the effect of delegitimizing the concern and people personalizing a concern that's more widely held because it's held by somebody who's controversial, if you get me.

MICHAL BARZUZA: Yes. I'll tell you what I'm concerned about, where I'm concerned. And this is actually related to another article you have wrote that I just discussed with my ESG class, which I really like, on the political economy of ESG and the Orwellian rhetorical, kind of. And I'll start by-- I'll explain more.

But I'll start by saying, maybe this is also what's going on now in corporate law. And this is why it's concerning. But I think that I-- from my perspective, I did our research on Nevada. And I think Nevada corporate law is extreme, extreme in protecting managers. I think it's concerning. I think if firms are going to be governed by law that doesn't have a liability for breach of duty of loyalty, unless there is intentional misconduct or nonviolation of law, it means there's no liability for conflict of interest.

Business judgment rule applied to all defensive tactics, either Unocal or Revlon situation. Almost no inspection rights. In order to prove the demand utility, you need to show intentional misconduct or nonviolation of law with no inspection rights. And nonviolation of law, you have to prove that you also knew the law with no inspection rights. It's really-- and I think that would be concerning.

LEO STRINE: Well, it is concerning.

MICHAL BARZUZA: But the progress--

LEO STRINE: But is it new? Is it new?


LEO STRINE: What I mean is because, if you think about one of the reasons why Marty was upset in the 1980s was when you had the debate about takeover defenses, you had statutes around the country that put-- that were very restrictive of takeovers. Delaware did an anti-takeover statute that, to my mind, has really never prevented a takeover. And he knew that. And he was upset about it. And he said that you should go elsewhere.


LEO STRINE: There have been-- there were states then-- actually, Maryland, where I was born, Maryland has got a very good judiciary. Maryland has on the takeover statute-- on the defenses, basically, something like Nevada, where instead of Unocal, Revlon intermediate review, it's business judgment rule.

And we shouldn't make-- let's not say that Delaware is always a hero of history. I have a very complicated relationship with what I call junk entities, alternative entities, LLCs. Delaware LLCs look a lot like this. And they-- we've allowed them into the public investor space. One of the things I'm doing is speech on AI and corporate governance in a month. And I've been reading everything I can on this and whether-- and trying to separate what's new from what's just an enduring challenge that we have to deal with more rapidly because of the velocity of history.

But it made me even more concerned about LLCs because I actually think the use of AI by alternative entities that might be-- have scale is actually scarier than C corps because C corps still have some basic issues. So to the extent what you're saying is, I am very concerned about balance. And I think-- I was just saying [INAUDIBLE], how many of you had heard of the term PFAS before the last five years? How many of you heard of the term PFAS now?

The products that put all that into our water systems have existed for decades. The ability of human beings acting through the corporate form to have a huge impact on the planets and humanities is not new. And the balance that we strike, in my view, there's never been more incentive to seek profit than there is right now when you have international product competition, cross-border things, institutional investors.


LEO STRINE: So striking the right balance about risk taking-- and you've got to be careful too because one of the things is you're talking about credible corporate law. What I mean is, do we have a credible protection against genuine self-dealing if someone invests in a company? And I think that's really important.

But I think it's equally important that we recognize that corporate law systems also create incentives for profit seeking that can be very powerful. And when those incentives get out of bounds, then in seeking profit for stockholders, a lot of harm can come to the rest of us. And so you started with, where are we in the conversation? A lot of this is not a new conversation.


LEO STRINE: Because in the 1970s, for example, people argued-- any of you know what a squeeze out merger is? Somebody who has control of a corporation. There was an argument that this was automatically a breach of fiduciary duty.


LEO STRINE: Because the theory was, if you already controlled the corporation and were a fiduciary, and you knew you could make the company more valuable, why shouldn't you just make it more valuable than to make everybody else an offer?

MICHAL BARZUZA: Well, I agree.

LEO STRINE: And people with Delaware got criticized for being soft on these things. Part of where the whole debate about squeeze us is it goes back beyond Kahn v. Lynch. There was actually an argument that the federal securities laws should address these things. And what I'm saying is Ralph Nader, he's an-- he was more influential even before he unfortunately tilted the presidential election. He was a hero of many of us, things he did in consumer protection.

But when he wrote with-- he wrote the book about Delaware, or Professor Carey called us, the pygmy state. Those were real political concerns. And in the 1980s, when the takeover drama was going on, Delaware was really worried about what would happen because we didn't actually go in sync. Most American states adopted constituency statutes and anti-takeover statutes, a majority of American states. One of the things I'm adding to my Orwell paper, you know that Florida and Texas have constituency statutes?

So you've heard arguments from some people in those states that the corporations in their state-- that corporate leaders can't take into account anything but stockholders? Memo to Tallahassee, your corporate law says the opposite. And I think one of the challenges for your generation is everything's in the moment right now because we can all get information. And a lot of courts have actually lost their tradition. And it maybe gets back to the quotidian is, how did we get to the current moment? And you probably have some questions about the current moment.

MICHAL BARZUZA: Yeah, I have--

LEO STRINE: I was trying to filibuster to avoid the current movement.

MICHAL BARZUZA: [LAUGHS] So we'll start with the current movement. And then I'll ask you also about ESG and-- because I have to say that when I see your work on ESG that is very extensive recently, I had the impression that you've been sitting on the bench for so many years. And the questions were always between shareholders and managers because this is what corporate law used to be. But you saw the big picture. And you kept seeing that there are other entities that are being affected. And after you step off the bench, my impression was that it's coming out of you after a kind of [INAUDIBLE].

LEO STRINE: See, it's really funny. In a weird way, it makes me feel good about that people like you all still come and see me because, sometimes, you always worry-- I wrote about this stuff the entire time I was a judge. I wrote an article called--

MICHAL BARZUZA: You did? About the history?

LEO STRINE: --"Human Freedom and Two Friedman's." It was about Milton Friedman and Thomas Friedman. It was in the University of Toronto Law Review that dealt with the implications of the corporate form and in the light of the fact that the world market-- remember, our New Deal was we had a national economy, but not a regulatory structure over it.

The way to look at the EU is-- as the European New Deal may be imperfect. But you had an economic state that was not coincident with it. I wrote in the article about globalization and the effect it was having on the common values of the OECD nations, and also of the ability-- I wrote about Berle and global New Deal. I did a thing in-- if you don't like the CEO to work or pay median, I'm in part to blame. The SEC is mostly to blame because they never put guidance in around it.

But I did an article about the shared interests of labor and management in corporate governance reform. I did it when a guy named Senator Joseph R Biden was running for president. You know who he was running for president against? A guy named President-- a guy named Senator Obama. And it was a-- and a thing-- and there was a symposium issue in the Journal of-- and Steve Bainbridge commented on it, I believe Jack Coffee. And I had put in there the CEO to median as a disclosure thing. And it got in Dodd-Frank.

So my preoccupation with the overall effect of corporate power on society is not new. What's different is when you're on the bench, you really are a different person if you're doing the job right. So I-- you can read my opinions and you're not going to know what my ideology is because corporate law is not actually ideological.

Delaware corporate law is basically a law about the relationship between managers and stockholders. And the polity that it sets up is really about them. That the basic structural of corporate law, as set by statute writers, is also an important guidepost and the most important one too, what the ends of corporate governance are. That within the limits of the law, the bottom line-- the first law of corporate law is, even in a state like Delaware, not make profits. It's that you can only do lawful business by lawful means.

But when I was a judge, I was a judge. When I'm a human being, I was also a person who pushed the public benefit corporation model, which is not-- it sounds like it's a charity, but it's for-profit companies that are stakeholder oriented. And it has a shall duty. I pushed Delaware doing that.

And so I get cited by-- in stockholder primacy articles as saying that Delaware-- that Strine is a stockholder polemicist. Now, I don't confuse my is with my ought. And they cite my articles where I do say that, if you look at the history of Delaware law, the structure of Delaware law, and if you look at a case called Revlon, that Delaware, the ends of corporate law in Delaware, are the best interests of stockholders.

That there's wide discretion for directors to take into account the best interests of other stakeholders as long as that has what, class? What's the rule of Revlon? It has a rational relationship to the best interests of stockholders. And when people say that Revlon is the exception, no, Revlon states the rule. Why in Revlon can't you reconcile it? Stakeholder and stockholder interest? Because the question is $57 now for the stockholders or $58.


LEO STRINE: We're going to take $57 because they'll be better for the workers or the communities. And you only get $57 as opposed to $58. The general rule of rational relationship cannot be satisfied in that context, which is why in the PVC model, which I supported, it expressly abrogates Revlon and says-- the board can say, like any sole proprietor, we're taking this lower deal. We've gotten tax subsidies from our communities. Our workforce didn't take pay raises for three years to help us get through tough times. This $57 offer is really attractive to you as a stockholder.

But they're also going to do justice by our communities and whatever. The PVC model says, you actually have to take the interests of those stakeholders in. And then the stockholders have to vote like real owners do of small businesses. And if they don't want the $57, they can take it and the company keeps going. But they don't get to just avoid the moral complexities.

But I don't think you can-- I guess what I'm saying is wishing away-- I believe in social progress. The only way you make social progress is distinguishing between the is and your ought. And there's something when your ought-- when is is this way and your ought is here, and you pretend they're the same, there's a word for that. It's called delusional. And it doesn't help progress.

So part of why I wrote about Orwell is I was always a big Orwell, Roosevelt, Burle, the good Adolf. People who are realists and acknowledge where we are, the human imperfections, to my mind, better position us to move to what's real. But my concern about the social implications of corporations is not new. But you're probably right. Since I've left the bench, that's what people have focused on. And there's this-- but it is this natural thing to think, oh, Strine was hiding this.

And if there was ever a person who hid stuff in plain sight, it would be me because, if you look at my articles from the beginning of the century-- and we get to say things like this, now at the turn of the century. Well, no, I wrote a lot, as you know, about index funds and about the fact that institutional investors were voting yes and no on the same merger.

And that made no sense for people who were there-- for an index fund to vote yes and no on the same merger, that you're representing people who have diversified portfolios, that your stewardship policies should reflect that. And that was before-- I wasn't smart enough to call it universal owners. But before even Louise and Oliver were writing about that, I was focused on that.

MICHAL BARZUZA: So I suggest--

LEO STRINE: But it's a good thing. Have any of you read "Takeover Bids in the Target's Boardroom?" Have you heard of Marty Lipton and the poison pill? It is really worth reading this article because it's from 1979. And one, he puts his fingers on all the issues. They're still the issues in the takeover debate.

But what he basically says there, and this is the end of the 1970s, is it's too late in American history to think that a corporation, when they're facing a takeover bid, that their only consideration is the best interests of stockholders. That, of course, they've got to take into account the interests of their consumers, their communities, their workers. And he talks about it.

And the basic debate, I think what's gotten a little bit weird, is the debate between those who would say, no, we should just focus on stockholders, or whether corporate leaders could say, well, but this isn't good for our workers and our communities, our consumers, has now gotten caught up in the culture wars, which are very distinct. And it's the idea, well, corporations are speaking out on gun rights one way or the other. Or they're speaking out on voting rights or reproductive choice.

And there is a dimension to the current thing that I think is quite different from the stakeholder/stockholder debate because-- and part of what I wrote in my article is, if you think about what good corporate citizenship is, [INAUDIBLE] is that if you look at polls on whether companies should-- I call it make money the right way, which is, to put it in economic terms, make money on quality and innovation and selling valuable products and services without externalizing costs, if you think about it.

And, guys, if any of you want, there's plenty of seats. Seriously, you don't have to-- or sit in the-- I always used to sit in the back along the corner. But it won't-- this is a very informal program. If you look at that issue from that way, if you think of good corporate citizenship as making money the right way so that when we rub up against all-- every corporation has employees.

If you look at polls from right to left, should corporations-- should workers go to work in the morning safe and come home safe? Should they be in a tolerant place where all people of good faith are welcomed during the day? Should they have quality wages and benefits so they can go home and have the promise of a better life for their children? There's a-- the partisan divide goes away. Should products and services be safe for consumers, make their lives better off, and be-- not harm them? No one from the right to left wants the opioid crisis.

MICHAL BARZUZA: Yeah, no, I agree.

LEO STRINE: And polluting. I look at polls of people who hunt and fish. Anybody fish or hunt? The R's all claim them. But if you look at polls of people who hunt and fish, they are strong that corporations shouldn't be polluting the environment. Paying taxes and supporting local institutions, not exempting yourself from the school taxes, again, no partisan divide.

These are the things that corporations really control. And if you think about good corporate citizenship in that way, then a lot of these things go away. When you talk about in the current environment, when a corporate leader on either side of the issue speaks out on something where the public is divided that has no direct relationship to that specific business, it's very unlikely to think that all the employees are going to believe the same thing, much less all the customers.

And of course, that's not what corporate leaders are elected to do. And I envision this, imagine a company where every employee was Christian and every customer was Christian and they bring their full Christianity to work every day. What's history suggest about what that workplace is going to be like?


LEO STRINE: Harmony?

STUDENT: Like a church?

LEO STRINE: No. They're all Christian. They all bring their full Christianity to work.

STUDENT: The wars of religion.

LEO STRINE: Yeah, how about-- how many people remember, is there only one type of Christian?


LEO STRINE: There's a schism. I was raised Catholic. Totally rational religion. It's totally rational.


LEO STRINE: The other religions, they're not-- it's all a little bizarre to me when my faith is totally rational. But how many schisms are-- I'm reading a thing about the Borgias right now. How many people in the history have been killed in thing? So then if we bring in the other Abrahamic faiths, then if we bring in everybody, and then we bring in people who don't believe, is-- so when people say like, bring their full self to work, they want to bring-- the question is, do they want you to be able to bring your full self to work?

And so one of the problems we have and we've got to get back to is, at places like this and everything, we learn from each other. And I think, actually, the workplace, there is a holiday that we have in the United States that is the perfect way the workplace should be. It's called Thanksgiving day rules. Does anybody have a crazy uncle?

Anybody admit to maybe being the crazy uncle or crazy uncle and then-- you have the crazy uncle. You love the crazy uncle. Most of the crazy uncle is great. But he's crazy. And he might actually be racist in some way. He may be sexist in some way. He may be against one religion or another. Actually, you've seen him interact with people at those things and he's really polite because, once he actually meets a human being, he's that way. But you don't want to get him talking about this.


So on Thanksgiving day, you talk about the cornbread stuffing. You talk about the football game. If it's Myron Steele, you don't talk about the UVA football game. You talk about another football game. But work, what is the most passionate thing you should disagree about at work? What are you there to do?

Work. The passionate disagreements you should have at work should be about solving the problem of the job, as long as you treat each other with respect where, no matter who you love, no matter the color of your skin, no matter what God you believe or if you believe God, if you treat everyone else with respect and you labor together, then you ought to be welcome. That's the strength of a nation. That's the true test. There is-- diversity of thought and belief is also an important part of diversity.

And when people in good faith with differences come together and solve common problems, they see aspects of their fellow humanity that they didn't see before. And everyone has blind spots. And most fear the person who believes he or she has no blind spots. And I think what we've lost, actually, and what's really important in this debate about the corporate sector is there are parts of the nation where there are only three or four major employers.

We all have political beliefs and all-- by the way, our beliefs, just because you're a Democrat doesn't mean you believe the same thing every other Democrat does. Just because you're a Republican doesn't believe you believe that, or an independent. We don't want a world where the only three or four employers in your region are a blue or a red color. We don't want a situation where we have companies where 46% of the population believes something, but the state's being boycotted because of the other 53%.

I think what we want to do is have the business sector be a place where there are values that must be respected and they're important, but that the ability of human beings to have diversity of thought and diversity of political thought is respected. And there's a great woman philosopher, Elizabeth Anderson, from Michigan, who wrote a book called Private Government, which echoes some things that Adolf Berle wrote about in the 1950s, which is, you will find, particularly as talented as you all are, that you will spend more time under the roof of your law firm or waking hours than you will with your family.

If that is some form of orthodoxy, one way or the other, you won't really be free. And so I think one of the things we're navigating is whether we can be a pluralistic society where we can interact in ways where we respect people's differences. It doesn't mean we don't have value because I think we're losing-- unfortunately, the way we're approaching things is pretty scary.

And I think right now, the business community is in total turtle mode this year, having worked on things like-- I care very much-- I wrote-- I spearheaded an amicus brief effort on behalf of the NASDAQ diversity rule for-- to increase things. If you look at what's happening in corporate commitments to inclusive hiring, they're very scared right now. But you have-- we have a client who's a reinsurer. They were actually told that they couldn't-- that it was somehow breaching their fiduciary duties to consider climate risk. They reinsure storm insurance.


How can they prudently write policies without considering climate risk? And this is where we are. We're in a place that's pretty scary right now. And so actually, studying corporate governance and trying to figure out some sensitive-- sensible ways to get back to some sense of normal is really important. I'm not sure we can even get to good. What I'm saying is, right now, I think it's just bizarre.

MICHAL BARZUZA: So I suggest-- so yeah.

LEO STRINE: So should we go to more prosaic things or--

MICHAL BARZUZA: No, we do-- 

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