Delaware governor signs controversial corporate law bill
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Delaware Gov. John Carney on Wednesday signed a controversial new bill into law that amends the state's statute on corporations.
Why it matters: Opponents criticized the bill process, saying it was rushed through the legislatures.
Catch up quick: The bill was introduced after the Chancery Court's decision in West Palm Beach Firefighters' Pension Fund v. Moelis & Company, which invalidated parts of an agreement that gave the investment bank's founder approval rights on major business decisions and board composition.
- The court found this approach violated corporate law and that it should have been handled in a different manner.
- Other similar decisions by the court have led corporations to complain to the state's legislators.
Zoom in: The bill establishes that companies can enter into such agreements with stockholders without having to amend their charters or articles of incorporation — actions that typically require shareholder approval.
- Critics of the West Palm decision say the new bill codifies agreements that have become common between boards, founders, activist investors and other major shareholders.
- They also argue that the decision creates uncertainty, and that legislation to bring clarity is necessary.
- The bill was sponsored by Delaware Senate Majority Leader Bryan Townsend who is an attorney at Morris James, and drafted by the Corporation Law Council, an influential Delaware State Bar Association committee.
The other side: Opponents of the bill — including dozens of U.S. corporate law professors — say that the bill was a hasty response, and the judicial process via the state's supreme court should be venue for considering the legal issues at hand.
- Opponents also worry the bill allows companies to change their governance and boards to give away their authority without shareholder approval or scrutiny.
- The bill also effectively creates a separate set of internal corporate claims that can be litigated under non-Delaware law, as the law professors note.
- "These would be the most consequential changes to Delaware corporate law of the 21st century, and they should not be made hastily — if at all," they write.
What's next: The law is expected to take effect on Aug. 1.
