Delaware‘s legislature is currently embroiled in a contentious debate over SB 21, a bill introduced on February 17 that seeks to overhaul the state’s corporate law. The bill aims to reduce judicial oversight, a move that has drawn both support and criticism from various stakeholders. The International Corporate Governance Network (ICGN) has voiced strong opposition, while a coalition of law firms has encouraged its passage. With Delaware being a key hub for corporate entities, the outcome of this legislative battle could have significant implications.
The bill’s introduction has stirred controversy as it bypassed the customary initial review by the Corporation Law Council (CLC). Instead, it was drafted with the assistance of Richards, Layton & Finger, a corporate defense firm that collaborated with respected lawyers, professors, and former jurists. Despite this unconventional approach, SB 21 has garnered backing from influential figures, including Governor Matt Meyer, who attempted to quell fears of a potential “DExit.”
Governor Meyer assured stakeholders that Delaware remains committed to maintaining its status as a corporate haven. The state currently hosts 2.2 million corporate entities from around the globe, with 81% of U.S. companies that went public last year registered there. Meyer emphasized that while there may be “some loss of clarity, predictability and fairness,” the state’s corporate environment remains robust.
Opposition from Shareholder Advocates
Opponents of the bill, notably the International Corporate Governance Network (ICGN), have expressed concerns about its impact on shareholder rights. ICGN CEO Jen Sisson warned that reducing judicial oversight “will be detrimental to shareholder rights, with potentially significant negative implications for long-term returns for investors, including people saving for their retirements, current retirees and other individuals investing their savings.” She further cautioned that the bill would “diminish shareholders’ trust that they can ‘seek remedies through litigation, when necessary.'”
In contrast, a group of 21 law firms, including prominent names such as Cravath, Swaine & Moore, Gibson Dunn, and Latham Watkins, sent a letter to Delaware’s general assembly on March 11 expressing their support for SB 21. They believe the bill could bring much-needed changes to the state’s corporate legal framework.
“We wanted to address what we can legislatively.” – Townsend
This sentiment reflects the perspective of those who see the bill as an opportunity to adapt and strengthen Delaware’s corporate laws in a rapidly evolving business landscape.
Despite the divided opinions, the bill has already passed several legislative hurdles and is now pending approval from the House of Representatives. Should it pass, it will then head to Governor Meyer’s desk for his signature.
“There is some loss of clarity, predictability and fairness.” – Matt Meyer
The governor’s acknowledgment underscores the complexity and potential repercussions of SB 21, emphasizing the delicate balance between reform and stability.
Author’s Opinion
Reducing judicial oversight in Delaware’s corporate law may be a risky move, especially when it comes to shareholder rights and long-term trust. While reform is often necessary, the bill’s potential to diminish the ability of shareholders to hold companies accountable could have lasting negative effects on investor confidence. At a time when transparency and fairness should be prioritized, the push for less oversight could be seen as prioritizing business interests over the rights of those who invest in these companies.
Featured image credit: Gage Skidmore via Flickr
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