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In the past week, we have seen developments both in Delaware as well as at the SEC, moves that could shape the governance landscape, the relationships between boards and shareholders and how large investment firms engage with corporate issuers.
Amid fears that tech companies are following Tesla and Meta by fleeing to sunnier states such as Texas and Nevada, Delaware lawmakers introduced a new bill that addresses some of the biggest criticisms from recent Chancery Court decisions regarding controlling shareholders and founder-led companies. The amendments provide less room for judicial interpretation of common law by the renowned Delaware courts and rely more on top-down statutes.
Delaware’s biggest business is the machinery of corporate law, and the state and its legal industry has allegedly been warned by their New York law firm colleagues that more exits from Delaware are coming. The FT quotes the University of Delaware’s Charles Elson saying the legislation “destroys Delaware’s reputation for neutrality and balance,” but Marty Lipton, in a memo to Wachtell clients, backs the legislation and says it will restore “confidence in Delaware’s corporate law, and as confirmation that Delaware remains able and willing to address the concerns of its corporate constituents as they arise.”
While Eric Talley of Columbia outlined the mechanics and Tulane Law Professor Ann Lipton opined on whether it’s a “good thing or bad thing,” Harvard’s Roberto Tallarita was less ambivalent, writing on LinkedIn: “The new Delaware bill is a radical repudiation of a method and an ethos…The bill embraces a bright-line top-down approach that aligns more with the continental tradition of centrally planned codification than with the casuistic, practical wisdom of the common lawyer. It is the end of an era.”
Speaking of radical, the SEC’s new rules promulgated last week sent shockwaves through big institutional investors and the advisory community given the implications: In effect, any voting against non-controversial matters, or even engaging on what’s best for an issuer, would require a 13D filing by the likes of Blackrock, Vanguard and State Street. There’s no way the “passive” investment funds are filing 13Ds. This breaks with decades of wisdom and practice, where institutional investors and issuers engaged constructively on governance and value creation. The move is positioned as a pushback against ESG activism but the rule’s unintended consequences could significantly alter how major asset managers interact with corporate boards.
These two topics will be front and center at Tulane’s Corporate Law conference in a few weeks. Please fill out our short survey of the prospects for M&A and activism in 2025.
Have a great weekend,
GPP
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