March 13, 2005
Questions on the Delaware Supremacy
Posted by Christine Hurt

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.

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