Back in the Long Term Capital Management days, Delaware courts were grappling with all sorts of protective devices cooked up by corporate boards (and Martin Lipton) that served as fortresses against the Gordon Gekkos of Wall Street.
One of the many gems of corporate jurisprudence emanating from the courts, Williams v. Geier, dealt with a management and majority-shareholder approved plan to grant weighted voting rights to long term shareholders.
At the time, the minority investors screamed. Indeed, their cause was a bit sympathetic, especially because the corporate board and the majority of shareholders were dominated by a single family. Minority shareholders, in this kind of situation, can get the shaft.
But here's the thing. In Williams v. Geier, the Delaware Supreme Court noted that the board, in giving better voting rights to long term shareholders, was perfectly reasonable corporate policy. That policy was not one aimed at short-term profits, but instead long-term, sustainable business strategies. Even if the pursuit of long-term growth disenfranchisws short-term investors, the Court thought it was still a-ok. Or, in corporate law parlance, a perfectly legitimate exercise of a board's business judgment that could only be rebutted in the face of evidence of a breach of fiduciary duty.
Notable in this case is it the Justices' dissent: the priority given to long-term interested shareholders over the "equally legitimate investment objectives" of short term investors provoked their ire.
It's very much open to debate, of course, whether the short-termism of minority investors is an "equally legitimate investment objective." Such short-termism, after all, lead to the kind of financial mysticism that leads to financial crises.
Something to chew over as we finally start paying attention to the fact that not all shareholders are created equal.
