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Corp. 1987), it upheld a state anti-takeover statute that allowed a
corporate board to fight off such an attempt.^ Its justification rejected the need
for state legislatures to follow "any one particular economic theory of the firm"
(p. 92) such as shareholder supremacy, while acknowledging a state interest in
"maintaining stable relationships between parties involved in corporations" (p.
90), Another court went further by actually finding a proactive duty to protect
employee benefits such as pensions and severance pay by eschewing mergers or
takeovers that might threaten these (GAF v. Union Carbide 1985). This case
first established the duty that the Supreme Court more recently extended in Varity
and Intermodal to transactions that did not involve takeovers.
On the other hand, the potential for self-dealing implicit in takeover defenses
has provided virtually the only circumstance where stockholders can challenge
the legitimacy of establishing an ESOP. ESOPs sometimes serve as a form of
takeover defense, either because the debt, cash, or dilution required to create
them might scare away suitors, or because the management-appointed trustees
IRRELE\7^NCE OF FIDUCIARY DUTIES TO SHAREHOLDERS 283
of the plan (and eventually, the vested employees) could probably be expected
to vote with management.
ESOPs upheld by courts, despite their concurrence with a hostile takeover,
are typically rationalized in stakeholder terms. Xerox, for example, could triple
the size of its existing ESOP in response to a takeover bid, because the ESOP
could be characterized with some credibility as part of a long-running program
of building a "partnership'" relationship with employees in order to improve productivity
(Monks and Minow, 1991). Moreover, current Xerox shareholders would
not have been hurt by the plan since employees would pay for most of it with
pay cuts, a move employees might prefer to losing their jobs in a hostile takeover.
ESOPs that materialize at the "last minute." however, have, on occasion,
been ruled a breach of fiduciary duty (see, e.g.. Yoshihoshi. 1992; Franz Mtg. v.
FAC Industries, 1985).
A similar split has occurred regarding the enforcement of "tin" parachutes,
generous severance packages for non-executive employees triggered only by
hostile takeovers. They were upheld, for example, in OAF v. Union Carbide.
Other courts, however, have thrown them out when such generosity was never
extend to employees who were laid off by the incumbent management team (Block
etal., 1989 and 1991).
While the precise details are complex and frequently mind-numbing, a legal
conclusion can be drawn from these various results. Management, almost by
definition, has a personal stake in opposing unsolicited takeover offers. Nonetheless,
if benefits from a defense can reasonably be construed as beneficial to
other stakeholder groups, and the defensive strategy is not clearly detrimental to
stockholders, managers do not entirely surrender the legal autonomy allowed
tbem in making virtually any other class of common corporate decisions.
Compelling a Stakeholder Approach
If American corporate law does little to inhibit a stakeholder orientation on
the part of corporate managers, it also does httle to compel one. Management
teams exercise a wide range of discretion as to whether to embrace a stakeholder
view of constituencies when