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Defending ESG: A new standard of review for defensive measures that impact ESG ratings
Ist Teil von
University of Pennsylvania law review, 2023-01, Vol.171 (1), p.203-234
Erscheinungsjahr
2023
Link zum Volltext
Quelle
EBSCOhost Business Source Ultimate
Beschreibungen/Notizen
The permissiveness of corporate defensive measures has been debated since their inception in the mid-1900s. Courts, scholars, and practitioners have grappled with the costs and benefits of these measures to both shareholders and society at large - and for good reason. On one hand, scholars and practitioners argue that defensive measures erode shareholder value by entrenching management, while on the other hand, supporters view defensive measures as valuable tools that allow target boards to appropriately defend against inadequate takeover bids. Delaware courts have confronted this debate in an interesting manner, initially viewing defensive measures as permissible under the business judgment rule, and later assessing them with enhanced scrutiny. But the Delaware courts have never considered defensive measures from a value perspective - or considered that certain defensive measures that depress ESG ratings - thus firm value - may warrant additional judicial scrutiny. This comment begins from the premise that higher ESG ratings are indicative of greater long-term firm value. As supported by empirical studies conducted over the last decade, the combination of a poison pill and staggered board reduces ESG ratings, and thus reduces long-term firm value. Therefore, this comment contends that the combination of these measures - the cornerstone of a "just say no" defense - should be assessed with enhanced scrutiny by Delaware courts. These defensive measures must survive heightened review at the "compelling justification" level. If the defensive measures do not survive this heightened standard of review, they must be viewed as an impermissible depression of shareholder value and dilution of shareholder rights.