“Experts” Advocating Changes to Delaware GCL
Many experts are looking at the current collapse of many companies in the US and advocating changes. Changes in shareholder rights seem to top the list. Changes that would be most easily accomplished by changing the Delaware General Corporation Law. That puts Delaware in the cross hairs of a possible Obama administration push for better corporate governance standards.
From Knowledge@Wharton:
The effect of such “majority voting” is dampened, however, by the fact that there typically is only one candidate on the ballot for each board opening — a candidate nominated by the board itself. Critics liken this to elections in the Soviet Union, complaining it is just too hard for challengers to get board approval to be placed on ballots, and they seek regulatory reform to open up the process. Most proposals would require candidates to be listed if they produce petitions representing a significant portion of shareholders, such as 3% or 5%. Business groups oppose the idea, arguing it would allow unions, environmentalists or minority shareholders to foment destructive turmoil.
But Lucian A. Bebchuck, a law professor at Harvard who specializes in governance, says such reforms would strengthen U.S. corporations, arguing they would serve shareholders better if they adopted some of the United Kingdom’s governance rules. In addition to opening the ballots to challengers and shareholder-sponsored issues, reform should include requiring all directors to face election every year, he says. In the “staggered” system common in the U.S., only a fraction of directors face election in any given year. Advocates say this promotes stability, while critics say it helps entrench weak directors and managers. Bebchuk’s studies have concluded that staggered boards weaken corporate performance. He says the range of reforms he advocates could be swiftly enacted by amending the Delaware General Corporation Law, since most U.S. companies are incorporated in that state.Obama has supported say on pay and other governance reforms, and most experts expect the Democratic-controlled Congress to push these issues next year.
Expect to hear more about this after the start of the new year. Will Mr. Biden stand up for Delaware or pursue his own interests?