Law professor, dean, and Chairman of the SEC William Carey called it the “race to the bottom.” Since a state can entice corporations to choose them as a legal domicile with the most executive- and director-friendly laws without having to bear the costs. Delaware has been the long-time winner of the race, so the second-smallest state has by far the highest number of corporations, a huge source of revenue for them from taxes, fees, and a very large infrastructure of corporate lawyers and courts. The legislature normally adopts whatever changes the state bar association recommends, and often does not even hold hearings. This change would make it possible to override the rights of shareholders by allowing contracts between the board and the CEO providing that he or she can make major decisions normally requiring shareholder approval. Note that even Professor Bainbridge, normally not a fan of shareholder rights, is appalled by this. We wonder if the highly publicized Tesla move from Delaware to Texas is one reason for the urgency.
Last month, Delaware Call reported on proposed amendments to the state’s corporate code that would have upended more than a century of contract law in ways that would have greatly benefited the most powerful corporations and private equity firms in the country at the expense of everyone else. Those proposed amendments were initially approved by a special committee within the Delaware State Bar Association (DSBA) in early April but were suddenly and without explanation pulled from final consideration after facing intense scrutiny by legal experts who said the changes would have allowed corporate interests to use stockholder agreements to circumvent the most important regulations ensuring transparency and accountability under Delaware corporate law’s board-centric regime….While some law firms have suggested that the revised amendments are necessary to bring Delaware’s corporate law “in line with market practice,” doubts remain about the extent to which these amendments actually solve real problems or just benefit a handful of powerful private equity firms that have already entered into governance contracts that are illegal under existing law but would be retroactively legalized by the amendments. UCLA Law distinguished professor Stephen Bainbridge — author of hundreds of law review articles and one of the most widely cited scholars on corporate law — called for the amendments to be scrapped entirely.
“Memo to the Delaware corporate law council: the proposed amendments to the [Delaware General Corporation Law]. . . is one of the worst examples of statutory drafting I’ve ever seen,” Bainbridge posted on May 10 to the social media platform X, formerly known as Twitter. “It’s a complete mess. It’s hard to parse just from a grammatical standpoint and difficult to apply in a legal sense. Start over.”
…Within Senate Bill 313 are three major changes to the corporate code that, if passed, will effectively overturn recent decisions handed down by the Delaware Court of Chancery, the venue for legal disputes between business entities incorporated in Delaware. One of those decisions, West Palm Beach Firefighters’ Pension Fund v. Moelis & Co., invalidated provisions of a stockholder agreement between the investment bank Moelis & Co. and its founder and chief executive officer that required his personal approval for nearly all consequential corporate decisions, including who would be allowed to sit on the board of directors.
Controversy swirls around proposed changes to Delaware’s corporate code | Delaware Call
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