DELAWARE JOURNAL OF CORPORATE LAW Vo.25 WHAT BUSINESS WILL LOOK FOR IN CORPORATE LAW IN THE TWENTY-FIRST CENTURY RICHARD J. AGNICH. Senior Vice-President Texas Instruments, Incorporated STEVEN F. GOLDSTONE. Chairman and Chief Executive Officer. RJR Nabisco. Inc THE HONORABLE JACK B. JACOBS Vice-Chancellor, Court of Chancery PIERRE S duPONT, IV, Esquire ichards, Layton Finger MICHAEL D. GOLDMAN, Esqui Potter. Anderson corroon MR. GOLDMAN: Thank you, Craig. Craig has told us about the first hundred years and we 'll try to run through the next hundred years. W have a very distinguished panel with us today and let me introduce them to you. To my immediate right, we have Steven F. Goldstone. Steve is currently chairman and CEO of RJR Nabisco. In another life, Steve was a partner in the prestigious New York firm of Davis, Polk Wardwell, and during the 80s he had major roles in a number of the nations largest battles for corporate control. In early 1995, he became the general counsel to RJR Nabisco. He then became the chief executive officer in October of 1995 Steve will offer us his views on the next century from the perspective of both a Wall Street lawyer and a CEO, which is kind of unusual To my immediate left is Richard Agnich. Dick has been senior vice-president and general counsel of Texas Instruments since 1988. He also served as secretary of the board of directors and has dealt with significant corporate governance issues. Dick is president of the Association of General Counsel and has served on the boards of the united States Committee of the pacific Basin Economic Council that's a tou one -and the u.s. Korean business Council. he's also a member of Advisory board of the International and Comparative Law Center
6 DELAWARE JOURNAL OF CORPORATE LAW [Vol. 25 WHAT BUSINESS WILL LOOK FOR IN CORPORATE LAW IN THE TWENTY-FIRST CENTURY Presenters RICHARD J. AGNICH, Senior Vice-President Texas Instruments, Incorporated STEVEN F. GOLDSTONE, Chairman and Chief Executive Officer, RJR Nabisco, Inc. Commentators THE HONORABLE JACK B. JACOBS Vice-Chancellor, Court of Chancery PIERRE S. duPONT, IV, Esquire Richards, Layton & Finger MICHAEL D. GOLDMAN, Esquire Potter, Anderson & Corroon - - - - - MR. GOLDMAN: Thank you, Craig. Craig has told us about the first hundred years and we'll try to run through the next hundred years. We have a very distinguished panel with us today and let me introduce them to you. To my immediate right, we have Steven F. Goldstone. Steve is currently chairman and CEO of RJR Nabisco. In another life, Steve was a partner in the prestigious New York firm of Davis, Polk & Wardwell, and during the '80s he had major roles in a number of the nation's largest battles for corporate control. In early 1995, he became the general counsel to RJR Nabisco. He then became the chief executive officer in October of 1995. Steve will offer us his views on the next century from the perspective of both a Wall Street lawyer and a CEO, which is kind of unusual. To my immediate left is Richard Agnich. Dick has been senior vice-president and general counsel of Texas Instruments since 1988. He also served as secretary of the board of directors and has dealt with significant corporate governance issues. Dick is president of the Association of General Counsel and has served on the boards of the United States Committee of the Pacific Basin Economic Council — that's a tough one — and the U.S. Korean Business Council. He's also a member of the Advisory Board of the International and Comparative Law Center
THE NEXT CENTURY OF CORPORATE LAW Today he would give us some provocative remarks on the necessary prerequisites for survival of global corporations Two seats down on my right, Pierre s. dupont, Iv, one of our commentators. Pete is the former two-term governor of our state. He also served three terms in the United States House of Representatives. Milton Freeman has correctly lauded Pete as one of the few politicians in this country who has"consistently stuck to principles. "Pete now practices law with the prestigious firm of Richards, Layton Finger in Wilmington. He is also Policy Chairman of the National Center for Policy Analysis To my far right, the Honorable Jack B. Jacobs, familiar to us all, Vice-Chancellor of the Court of Chancery of the state of Delaware. Jack and I began our careers as law clerks to the Court of Chancery in 1967 a few weeks ago- working for the Honorable william Duffy who then presided as Chancellor. Jack then practiced with the prestigious Wilmington firm of Young, Conaway, Stargatt Taylor In 1985, I believe, he became Vice-Chancellor and during the takeover years, he wrote some of the most significant decisions of that time some of which i won some of which i lost vanhoe y. New mont I ovC v. Paramount. He frequently speaks, as we know, at functions for the American Bar Association, the delaware Bar Association and for Tulane University at its corporate law institute which many of you here have attended All right. By way of introduction, in 1996, this little dinky brewing company, Spring Street Brewing Company, became the first entity to have a direct public offering on the internet. It was a very inexpensive situation In 1999, as we know, technology stocks helped the Dow pass 11, 000. This is also the year of the Euro dollar uniting fifteen European currencies Richard Grasso, chairman of the New York Stock Exchange, has recently acknowledged that the exchange must plan to directly trade foreign stocks no more DRs, in order to keep pace with the global economy So where are we going with all this? Eileen Filliben of my office and myself, mostly Eileen, have prepared a piece that is part of your symposium materials entitled "Corporate Governance, Current Trends and Likely Developments for the 2lst Century. It's our crystal ball look a hundred years out. So who can tell that were wrong? We surveyed the current trends in corporate governance and theorize on the likely impact of those trends irst, technology is reshaping the way companies raise capital interact with suppliers and relate to investors. Small companies are now raising public capital with direct offerings on the internet -QvC Network, Inc. v. Paramount Communications Inc, 635 A2d 1245(Del. Ch
2000] THE NEXT CENTURY OF CORPORATE LAW 7 1 Ivanhoe Partners v. Newmont Mining Corp., 533 A.2d 585 (Del. Ch. 1987). 2QVC Network, Inc. v. Paramount Communications Inc., 635 A.2d 1245 (Del. Ch. 1993). Today he would give us some provocative remarks on the necessary prerequisites for survival of global corporations. Two seats down on my right, Pierre S. duPont, IV, one of our commentators. Pete is the former two-term governor of our state. He also served three terms in the United States House of Representatives. Milton Freeman has correctly lauded Pete as one of the few politicians in this country who has "consistently stuck to principles." Pete now practices law with the prestigious firm of Richards, Layton & Finger in Wilmington. He is also Policy Chairman of the National Center for Policy Analysis. To my far right, the Honorable Jack B. Jacobs, familiar to us all, Vice-Chancellor of the Court of Chancery of the state of Delaware. Jack and I began our careers as law clerks to the Court of Chancery in 1967 — a few weeks ago — working for the Honorable William Duffy who then presided as Chancellor. Jack then practiced with the prestigious Wilmington firm of Young, Conaway, Stargatt & Taylor. In 1985, I believe, he became Vice-Chancellor and during the takeover years, he wrote some of the most significant decisions of that time — some of which I won, some of which I lost — Ivanhoe v. Newmont, 1 QVC v. Paramount. 2 He frequently speaks, as we know, at functions for the American Bar Association, the Delaware Bar Association and for Tulane University at its corporate law institute which many of you here have attended. All right. By way of introduction, in 1996, this little dinky brewing company, Spring Street Brewing Company, became the first entity to have a direct public offering on the internet. It was a very inexpensive situation. In 1999, as we know, technology stocks helped the Dow pass 11,000. This is also the year of the Euro dollar uniting fifteen European currencies. Richard Grasso, chairman of the New York Stock Exchange, has recently acknowledged that the exchange must plan to directly trade foreign stocks, no more DRs, in order to keep pace with the global economy. So where are we going with all this? Eileen Filliben of my office and myself, mostly Eileen, have prepared a piece that is part of your symposium materials entitled "Corporate Governance, Current Trends and Likely Developments for the 21st Century." It's our crystal ball look a hundred years out. So who can tell that we're wrong? We surveyed the current trends in corporate governance and theorize on the likely impact of those trends. First, technology is reshaping the way companies raise capital, interact with suppliers and relate to investors. Small companies are now raising public capital with direct offerings on the internet
DELAWARE JOURNAL OF CORPORATE LAW Vo.25 Now. as we said the first one was in 96. There were 35 in 97 and over 250 in 98. Electronic commerce is exploding. If you've gone on Ebay whatever, $7 billion over the internet in 1999 in goods traded. $327 billion projected for 2020. Companies are now using the internet for annual eports and proxies. So you've got a technology explosion Second, you've got globalization. The world is shrinking. Country oundaries are being replaced by boundaries of groups of people who are tinguished by their buying preferences. Nationalism is giving way to dependence and economic efficiencies. The EMU, European Monetary Union, is being used to unite the currencies of the European nations. The Euro dollar is expected to compete directly with the yen and the American dollar And in addition to all this, there is a push for a European company statute to allow companies from different member states to merge. The third prong to this is corporate promoters are rejecting traditional corporate forms today in favor of those providing for maximum potential private ordering. Promoters of these new entities, the limited partnership ity company, are writing fiduciary duties out of their agreements and the Delaware Court of Chancery is enforcing those corporate promoters worldwide will seek a new form of entity that will afford maximum flexibility and simplicity. The uniform entity will expand the llC concept and will further meet promoters needs. Private ordering will replace statutory requisites and common law duties. As the late Judge Henry Friendly of New York once observed, "The business of business is business. "It's not fiduciary duties and it's not regulation Unit holders will be willing to concede almost all control in exch for higher rates of return. The bucks. The entity contract will structure all stakeholder relationships and define the duties, if any, of the managers. It may eliminate all meetings and elections. Conflicts will be resolved by interpreting the contract We submit, and this is directed to Delaware, that the jurisdiction that creates, sustains and supports this universal entity will be the corporate governance leader not only in this country but worldwide. It's going to be one economIc, one corporate situation So much for my thoughts and musings. Let's hear what the real experts that you came to hear have to say about the next hundred Steve Goldstone will begin by telling us what he believes business will look for in the twenty-first century MR GOLDSTONE: Thank you, Mike. I'll tell you what I think if you give me the microphone
8 DELAWARE JOURNAL OF CORPORATE LAW [Vol. 25 Now, as we said the first one was in '96. There were 35 in '97 and over 250 in '98. Electronic commerce is exploding. If you've gone on Ebay, whatever, $7 billion over the internet in 1999 in goods traded. $327 billion projected for 2020. Companies are now using the internet for annual reports and proxies. So you've got a technology explosion. Second, you've got globalization. The world is shrinking. Country boundaries are being replaced by boundaries of groups of people who are distinguished by their buying preferences. Nationalism is giving way to interdependence and economic efficiencies. The EMU, European Monetary Union, is being used to unite the currencies of the European nations. The Euro dollar is expected to compete directly with the yen and the American dollar. And in addition to all this, there is a push for a European company statute to allow companies from different member states to merge. The third prong to this is corporate promoters are rejecting traditional corporate forms today in favor of those providing for maximum potential private ordering. Promoters of these new entities, the limited partnership and the limited liability company, are writing fiduciary duties out of their agreements and the Delaware Court of Chancery is enforcing those agreements. Among other things, Eileen and I have predicted the following: That corporate promoters worldwide will seek a new form of entity that will afford maximum flexibility and simplicity. The uniform entity will expand the LLC concept and will further meet promoters' needs. Private ordering will replace statutory requisites and common law duties. As the late Judge Henry Friendly of New York once observed, "The business of business is business." It's not fiduciary duties and it's not regulation. Unit holders will be willing to concede almost all control in exchange for higher rates of return. The bucks. The entity contract will structure all stakeholder relationships and define the duties, if any, of the managers. It may eliminate all meetings and elections. Conflicts will be resolved by interpreting the contract. We submit, and this is directed to Delaware, that the jurisdiction that creates, sustains and supports this universal entity will be the corporate governance leader not only in this country but worldwide. It's going to be one economic, one corporate situation. So much for my thoughts and musings. Let's hear what the real experts that you came to hear have to say about the next hundred years. Steve Goldstone will begin by telling us what he believes business will look for in the twenty-first century. MR. GOLDSTONE: Thank you, Mike. I'll tell you what I think if you give me the microphone
2000 THE NEXT CENTURY OF CORPORATE LAW Thanks a lot for having me here today. In my former life as a lawyer, I had a lot of happy, or let me say some happy, a lot of challenging moments advising clients with transactions under Delaware law. But I dont want to talk to you really from my perspective as a former lawyer, former practicing lawyer. More a little bit from my perspective as head of RjR And I also want to caution you, I'm not going to make predictions about what's going to happen over a hundred years. I really want to talk about, in my own view based on my experience over the last few years somewhat of a fundamental concept. And really it goes to this question of the flexibility that we all cherish so much in the law and in the common law versus a businessperson s need for clarity and predictability In my few years, just to back up for a second, at RR Nabisco, if there is one thing that struck me, it probably shouldn't have that much but it did and it may be because of RR Nabisco's unique situation, was the werfully persuasive influence of lawyers in the business world in the United States. Now, I guess that's nothing really new, but because I think if you may have heard or read the DeToqueville in his travels in America, he said that the power of lawyers envelope the whole of society penetrating each component class and constantly working its secret upon its unconscious patient. Perhaps because it worked in secret or they worked in secret, DeToqueville also noted that " the power of lawyers is little dreaded and hardly noticed Well, that, in my view, has changed dramatically to anybody who is a corporate director today or who runs a public corporation today. That ower has come out of the closet in the latter part of this century. And the question in my view is will we be better able to cope with this power, this pervasive influence in And as for the globalization that Mike just described in the twen first century, I think the question is will international business and corporate elationships follow worldwide the American pattern or will the United States have to adjust? And I think just listening to Mike talk about that new orporate form and how set out it will be, how concrete it will be, how predictable, how clear it will be, I think goes to this kind of question I'm asking. Because, certainly, from a businessman,s point of view, the wide variations in corporate and business law, particularly between the U.S. and the rest of the world will make less and less sense. And I'm not even talking about our tort system in the United States. I'm talking about our corporate law system It's bad enough dealing with the multiple legal and regulatory systems just in this country, but the problem is obviously exacerbated as transactions involve even greater numbers of jurisdictions around the world and through worldwide mergers, significant numbers of shareholders throughout the
2000] THE NEXT CENTURY OF CORPORATE LAW 9 Thanks a lot for having me here today. In my former life as a lawyer, I had a lot of happy, or let me say some happy, a lot of challenging moments advising clients with transactions under Delaware law. But I don't want to talk to you really from my perspective as a former lawyer, former practicing lawyer. More a little bit from my perspective as head of RJR Nabisco. And I also want to caution you, I'm not going to make predictions about what's going to happen over a hundred years. I really want to talk about, in my own view based on my experience over the last few years, somewhat of a fundamental concept. And really it goes to this question of the flexibility that we all cherish so much in the law and in the common law versus a businessperson's need for clarity and predictability. In my few years, just to back up for a second, at RJR Nabisco, if there is one thing that struck me, it probably shouldn't have that much but it did and it may be because of RJR Nabisco's unique situation, was the powerfully persuasive influence of lawyers in the business world in the United States. Now, I guess that's nothing really new, but because I think if you may have heard or read the DeToqueville in his travels in America, he said that "the power of lawyers envelope the whole of society penetrating each component class and constantly working its secret upon its unconscious patient." Perhaps because it worked in secret or they worked in secret, DeToqueville also noted that "the power of lawyers is little dreaded and hardly noticed." Well, that, in my view, has changed dramatically to anybody who is a corporate director today or who runs a public corporation today. That power has come out of the closet in the latter part of this century. And the question in my view is will we be better able to cope with this power, this pervasive influence in the next century? And as for the globalization that Mike just described in the twentyfirst century, I think the question is will international business and corporate relationships follow worldwide the American pattern or will the United States have to adjust? And I think just listening to Mike talk about that new corporate form and how set out it will be, how concrete it will be, how predictable, how clear it will be, I think goes to this kind of question I'm asking. Because, certainly, from a businessman's point of view, the wide variations in corporate and business law, particularly between the U.S. and the rest of the world, will make less and less sense. And I'm not even talking about our tort system in the United States. I'm talking about our corporate law system. It's bad enough dealing with the multiple legal and regulatory systems just in this country, but the problem is obviously exacerbated as transactions involve even greater numbers of jurisdictions around the world and through worldwide mergers, significant numbers of shareholders throughout the world
DELAWARE JOURNAL OF CORPORATE LAW Vo.25 Now, here I come back to this point about flexibility because we all learned in law school about the wondrous flexibility and adaptability of the common law and how it was particularly suited to fast-changing economic and business needs. And as a lawyer, I could well appreciate what we were all taught about the advantages of a common law system But in the last few years, with my businesspersons hat on, I have to wonder really at what cost are we getting all this flexibility Now, I'm not a scholar of comparative law, but as I contrast the five-to-ten-page contracts that RJR Nabisco's overseas contracts operating under the civil law often enter into with the fifty or seventy or a hundred page contract that's so typical of transactions here, I wonder whether the advantages of flexibility are worth the price of ever-increasing length and complexity as all of our bright, young lawyers add yet one more clause to their standard forms to deal with the latest pronouncement of Vice- Chancellor Jacobs or Chief Justice Veasey or all of our other colleagues It was very exciting for me to be a takeover lawyer in the 80s and I obviously can see it's still exciting to be in the90s. The development of he law in the Delaware courts in the takeover area was exciting to be part of. Issues relating to poison pills and options and auctions and boards' duties in the takeover context were intellectually interesting and a challenge to any advocate. And I very much recall, like Talmudic scholars, lawyers pouring over every word of the latest Delaware case to try to decipher what those words might portend for the next takeover battle and the advice they'd be asked to give as to whether a particular transaction or action would or would not pass muster under Paramount or Revlon or Unocal.5 And the list of cases was still getting longer when I stopped worrying about them, or thought I was going to stop worrying about them. But somehow when you hief executive and a corporate director, being part of the developing law is not quite as much fun as when you were practicing law Just looking at mergers and acquisitions in the U. K, and I know you're all familiar with it and I won,'t dwell on it, but the rules really are pretty clear and straightforward. You know, English lawyers are always quick to point out that takeovers are governed not by law but by regulation and whatever you call it, the U.K. code together with the panel that supervises it acts as a British version of civil law. And the principle and rules that govern takeovers for the most part are very clear First and foremost, the target company cannot take any action that would"frustrate a bid, "1.e, no poison pills, no ESOPs, no stock repurchase Paramount Communications Inc v QVC Network Inc, 637 A 2d 34(Del
10 DELAWARE JOURNAL OF CORPORATE LAW [Vol. 25 3Paramount Communications Inc. v. QVC Network Inc., 637 A.2d 34 (Del. 1994). 4Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986). 5Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985). Now, here I come back to this point about flexibility because we all learned in law school about the wondrous flexibility and adaptability of the common law and how it was particularly suited to fast-changing economic and business needs. And as a lawyer, I could well appreciate what we were all taught about the advantages of a common law system. But in the last few years, with my businessperson's hat on, I have to wonder really at what cost are we getting all this flexibility. Now, I'm not a scholar of comparative law, but as I contrast the five-to-ten-page contracts that RJR Nabisco's overseas contracts operating under the civil law often enter into with the fifty or seventy or a hundred page contract that's so typical of transactions here, I wonder whether the advantages of flexibility are worth the price of ever-increasing length and complexity as all of our bright, young lawyers add yet one more clause to their standard forms to deal with the latest pronouncement of ViceChancellor Jacobs or Chief Justice Veasey or all of our other colleagues. It was very exciting for me to be a takeover lawyer in the '80s and I obviously can see it's still exciting to be in the '90s. The development of the law in the Delaware courts in the takeover area was exciting to be part of. Issues relating to poison pills and options and auctions and boards' duties in the takeover context were intellectually interesting and a challenge to any advocate. And I very much recall, like Talmudic scholars, lawyers pouring over every word of the latest Delaware case to try to decipher what those words might portend for the next takeover battle and the advice they'd be asked to give as to whether a particular transaction or action would or would not pass muster under Paramount3 or Revlon4 or Unocal. 5 And the list of cases was still getting longer when I stopped worrying about them, or thought I was going to stop worrying about them. But somehow when you become a chief executive and a corporate director, being part of the developing law is not quite as much fun as when you were practicing law. Just looking at mergers and acquisitions in the U.K., and I know you're all familiar with it and I won't dwell on it, but the rules really are pretty clear and straightforward. You know, English lawyers are always quick to point out that takeovers are governed not by law but by regulation, and whatever you call it, the U.K. code together with the panel that supervises it acts as a British version of civil law. And the principle and rules that govern takeovers for the most part are very clear. First and foremost, the target company cannot take any action that would "frustrate a bid," i.e., no poison pills, no ESOPs, no stock repurchase