Shareholder Access and the Advocacy Role of Delaware in the Corporate Governance Debate (Part 1)

In discussing the five worst shareholder cases decided in Delaware in 2010, we noted that the Delaware courts could be seen as advocates in the corporate governance debate rather than neutral arbiters. 

As if to confirm these views, the State of Delaware has filed an amicus brief in Business Roundtable v. SEC, the suit against the Commission to invalidate the access rule, Rule 14a-11.  The brief was filed by Lawrence W. Lewis, the Delaware Solicitor, who is in the executive branch and was appointed by the State Attorney General. 

The debate on access has brought out a series of firsts.  The State Bar Association for the first time filed a comment letter in the access debate.  See Letter from the Delaware State Bar Association, July 24, 2009.  Likewise this appears to be the first time that the State of Delaware has filed an amicus brief in a federal case involving significant issues of corporate governance (certainly if anyone knows another example, please comment and let us know). 

The brief does not examine the administrative law issues.  It is, instead, mostly a plea to leave the matter to the states, particularly Delaware, which is described as "the preeminent jurisdiction to which other states look both in drafting their statutes and in formulating their common law."  Brief, at 2.  While one can reasonably argue that a state, rather than federal, forum should resolve access issues, the matter is closed.  Congress gave the SEC the authority in Dodd-Frank to resolve the issue, and it has.  Moreover, Congress (and the SEC) only did so after Delaware did little or nothing to foster access rights during the sixty year period when the SEC considered imposing the rights under federal law.  

But the brief does tip the hand of the executive branch in Delaware.  The branch wants to preserve the corporate governance monopoly exercised by the State.  The state has a management friendly approach to corporate governance that is financially rewarding and facilitates the state's ability to remain a low tax jurisdiction. 

The executive branch also appoints the judges to the Chancery Court and Supreme Court.  The candidates are vetted by a bar committee and appointed by the the governor, with the advice and consent of the state Senate.  For a description of the process for appointing judges in Delaware, go here.  Presumably, the same desire to preserve the preeminent role of Delaware in the corporate governance process (and preserve the income stream) evident in the access brief is also a factor in the judicial selection process.  

Lets take a look at the content of the brief.

For a history of the SEC's efforts to provide for shareholder access (a process that dates back to 1942), see The SEC, Corporate Governance, and Shareholder Access to the Board Room.   Assorted briefs and motions in this case can be found at the DU Corporate Governance web site.