1984: takeovers hit the radar screen; The early days of hostile M & A set off alarms in boardrooms and on Capitol Hill.

• Author: Rodino, Peter Wallace, Jr.
• Position: FROM THE ARCHIVES

Ed. Note: The year was 1984. Rep. Peter W. Rodino Jr., who had distinguished himself a decade earlier as chairman of the House Judiciary Committee's Watergate impeachment hearings, was now fired up about the rash of hostile takeovers roiling corporate America. DIRECTORS & BOARDS published his "Plan to End Hostile Takeovers" (Summer 1984), a proposal to put the brakes on this burgeoning activity. An excerpt from the article follows. Rodino, who stepped down from the House in 1989, died on May 7, 2005, at age 95.

THE BUSINESS WORLD continues awash in hostile takeovers. Gulf Oil, for example, was an $11 billion target before being pressured into a $13 billion deal with Socal. And Texaco, only weeks after its $10 billion buyout of Getty Oil, had to pay nearly $2 billion to save itself from attack from another potential raider.

The U.S.'s tolerance of hostile takeovers is distinct. They do not occur in Germany or Japan. Great Britain, although not outlawing them, subjects hostile takeovers to a public-interest review by a commission.

I am not sure why our attitude toward such takeovers has changed, but, until 20 years ago, they were unknown in the United States. I suspect, though, that most of these bids are engineered by a relatively few acquisition-minded companies and by investment bankers, a group that could hardly be said to be financially disinterested.

Are there benefits in these takeovers? Some argue that they are vehicles to dump inefficient management. But a Federal Trade Commission study in July 1980 found that one of the top 12 motives for acquisitions was a desire to obtain the good managers with the target firm, not to replace poor ones.

Takeover threats will keep target managers on their toes, others contend. If this is so, they are a spur only to short-term performance, one chief executive told our committee. A takeover threat, he said, gives management no incentive to look to the long-term future of a company, and the threat actually detracts from both short- and long-term performance because it is a frequent, time-consuming distraction.

Indeed, one business executive says that the costs of an unfriendly takeover are inevitably too high--"and we do not have an unused management pool to replace old management." Another says that making an acquisition is hard enough "without the added burden of conflict from the start." In sum, an acquisition-minded company looking for a good investment is likely to pick a well-run firm as a...