"Barbarian Scholarship: Making the Case for the Legitimacy of Hostile Takeovers in the 1980s"

This paper recounts the work of corporate raiders, financial economists, and conservative legal scholars to legitimize the wave of hostile takeovers that swept through the American economy during the 1980s. Fueled by the Reagan Administration’s neglect of antitrust activity and the rise of junk bond financing, the hostile takeovers of the 1980s forced American businesses to reckon with the power of large investors and to reframe corporate policy and structure around satisfying shareholder demands. Though corporate raiders and takeover artists had the capital to target most large American businesses, they were aware that their attacks on American corporations could be stopped by legal or political action at either the federal or state level. This risk of political action made the fight to establish the legitimacy of hostile takeovers central to the politics of business in the 1980s. Incumbent managers formed alliances of convenience with labor unions and government officials to attempt to block takeovers, while corporate raiders found useful champions in a group of financial economists and legal scholars who argued that takeovers helped to maximize shareholder value and better align managers’ interests with those of stockholders. This argument proved to be effective at convincing the Reagan Administration and the Securities and Exchange Commission to not step in and regulate corporate takeovers, but it was not able to prevent state legislatures from passing laws that significantly curtailed takeover activity. Though the takeover wave subsided by the end of the decade thanks in part to these state ant-takeover laws, the arguments used to justify takeovers survived and were taken up by institutional investors in the 1990s who used them to buttress their own, more genteel, efforts to pressure corporations to direct more and more of their profits to shareholders as opposed to workers.