A 'Chewable' Poison Pill

Harvard Professor Lucian Bebchuk has been trying to get companies to adopt a measure into their bylaws that would put restrictions on how they can use the controversial takeover defense to ward off unwanted suitors. Bebchuk’s Bylaw, as it is known, is intended to put limits on how poison pills can be used.

After early rejections by CA and others, Bebchuk changed the proposal to make it more palatable to boards. Since then, the bylaw has been adopted by AIG, Time Warner, and more recently, CVS, Disney, Bristol-Meyers Squibb and JCPenney.

Columbia Professor John Coffee believes the poison pill is still evolving. He says a “chewable pill,” one that would require readoption or shareholder override by a majority vote, is necessary.

Richard Ferlauto, pension and benefit policy director of the American Federation of State, County and Municipal Employees, thinks the shift to bylaw-change efforts “is really the wave of the future for corporate-governance activists.”

Opponents aren’t convinced. “It’s another gimmick to enhance shareholder power at the expense of the board,” says Marty Lipton, of law firm Wachtell, Lipton, Rosen & Katz, credited with inventing the poison pill more than 20 years ago. “It’s more of a nuisance than anything else, and it isn’t going to overhaul the way business is done.”

Bebchuk believes the benefits of adopting his proposal outweigh any surrender of power. He says he will likely target more companies next year.