“As Dan Yankelovich tells us, the populous began to believe in the New Society and in what was being built by the economic and business communities in the ‘50s and ‘60s. They became convinced that a totally new and totally unprecedented economy had been achieved upon which we could all depend and build. But not only did the public believe in this vision, but business also believed in it. Many of those in the business community became convinced that they had found the ultimate wisdom, that they could do no wrong, that all their ventures would always turn out well.”
The post-war decades had been very good for American business, and a new generation of investors had joined in the boom years. By 1966, the number of individuals holding shares in American companies had tripled to nearly 22 million. Tens of millions more held shares through pensions and other funds. Relations between shareholders and management were generally harmonious, and collegial corporate boards rarely contested management decisions.
But corporate growth helped bring the honeymoon to an end. In an era of strong antitrust regulation, corporations seeking expansion found it safest to acquire unrelated businesses, thus creating the famed conglomerates of the 1960s. Before, contests for corporate control usually revolved around proxy contests; in the conglomerate era, surprise cash tender offers were the weapon of choice. Potential acquirers would quietly assemble a substantial block of stock and then make a bid for control by offering high prices during a brief window of time. Between 1948 and 1954, 1,773 companies were acquired by larger entities.11 Between 1960 and 1971, nearly 25,000 takeovers took place, making them an ever-present threat to management.
The SEC had no authority over tender offers, so SEC staff first campaigned for and then materially assisted in drafting legislation to bring them under its purview. In 1968, U.S. Senator Harrison A. Williams, Jr. (D-NJ) helped to enact tender offer reform legislation. The Williams Act required significant disclosure from bidders seeking to acquire control of a company, particularly their identity, intentions and source of funds. It also required them to accept all shares tendered within a 10-day window and to pay the same price to all shareholders. In subsequent years, new SEC rules broadened the scope of the Williams Act.
The Williams Act put the brakes on the use of tender offers to seize corporate control for more than a decade. But it drew the SEC into pitched battles over the boardroom in decades to come.12