This week, we had an alumnus on campus who is the general counsel of a mega-company. In speaking to my class, he said a lot of things that sparked my students' interest. Of course, he gave some practice tips and strategies that don't comport with "book learnin'," but I expected that. However, he made two statements that surprised me, and both statements were reasons he gave for not incorporating in Delaware.
First, he said that incorporating in Delaware was dangerous because the court is an activist court. He associated activism with pro-shareholder activism, even though he has been in the corporate law arena far longer than the recent spurt of post-2001 activism.
Second, he told my students to always incorporate in a state where the business judgment rule is codified in a statute. The argument was that a textual statute gives a board of directors more guidance than evolving standards under common law. The example that he gave was Massachussetts, which provides for the standard of care of directors in Chapter156D, section 8.30. A student commented that all statutes are then interpreted by case law, so then doesn't that put you in the same position, but the speaker tossed that comment aside.
I would love to hear if others have thoughts on the desirability of either of these two characteristics of state corporation laws.
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8345157d569e200d8343d752e53ef
Links to weblogs that reference Questions on the Delaware Supremacy:
1. Posted by Gordon Smith on March 13, 2005 @ 16:44 | Permalink
Christine,
This is a very interesting perspective. Many of us were unsatisfied with the anti-shareholder perspective of the Delaware courts before 2001, and after we wrote about that, the courts have balanced things out a bit. (It's hard to claim caused and effect, but there were enough people expressing similar thoughts that I think it must have had an influence.)
I am a bit surprised that this fellow thinks that the incorporation decision should be based on the Delaware courts. The Thomas/Thompson study shows that most litigation in Delaware is over a fairly small range of cases, so I doubt that most corporations will find themselves in the Delaware courts. And even if you have such a case, would you rather have a court that does not deal regularly with corporate law issues? That seems like quite a risk of its own. How can you ensure that the non-Delaware court will be more pro-management? Anyway, the better reason to choose Delaware is that they provide great service to incorporated firms.
Finally, the business judgment rule canard. Courts will go crazy without a statute to constrain them! I think this is just silly, and I wrote as much in a symposium article, which you can find here. Efforts to codify the BJR are really efforts to water down the duty of care. Can you imagine that?! Watering down a duty that is so rarely the basis of liability that we have trouble finding a case for our casebook!?! By the way, last time I checked, the few recent cases that people have found that purport to pose BJR problems are not Delaware cases, so again, why the anti-Delaware feeling?
| Sun | Mon | Tue | Wed | Thu | Fri | Sat |
|---|---|---|---|---|---|---|
| 1 | 2 | 3 | 4 | |||
| 5 | 6 | 7 | 8 | 9 | 10 | 11 |
| 12 | 13 | 14 | 15 | 16 | 17 | 18 |
| 19 | 20 | 21 | 22 | 23 | 24 | 25 |
| 26 | 27 | 28 | 29 |
