Sorry for the paucity of posts...it's the summer and I'm
working under editor deadlines. That said, I thought I'd point out an article in today's WSJ about a pending change in the
Oklahoma corporate law. Oklahoma is amending its corporate law to require
publicly-traded OK firms have classified boards. At first glance, that's
a little bit surprising. The new law freezes in place a core component of
the pill/staggered board defense. The recent trend in corporate
governance has been to de-stagger boards not stagger them. The WSJ
article reports ISS data noting that in 2005 53% of the S&P 500 had
staggered boards, while only 31% of them presently have them.
What this amendment points out is the real nature of the
current competition amongst the states for incorporations. And that is
there isn't any. This isn't the early 20th century anymore. As Rob
Daines pointed out in a paper (Incorporation
Choices of IPO Firms) a few years ago, at IPO firms will incorporate in
their home state or in Delaware. That's not much competition. For
the most part, all the states have adopted basically the same corporate
statute. What sets Delaware apart from most states is the massive legal
infrastructure that has grown up around the corporate law in that state.
Clearly, Delaware is interested in preserving that massive advantage in
the incorporation business and will be aggressive in defending its position -
though it's real competition is the Feds and not any state.
To be fair to Delaware, they have so many firms
incorporated there - and few with any real contacts to the state - that they
can more or less disspationately decide cases and the content of the law
without regard to particular corporations. If GE has an opinion on a
provision of the Delaware corporate law, unless it's also an opinion widely
held by other firms, it's not likely to generate a lot of traction. This
is not necessarily so in other states - towit Oklahoma.
Turns out one of the biggest publicly-traded firms
incorporated in Oklahoma is Chesapeake Energy Corp. Chesapeake has been a target
of corporate governance types and those who are outraged over CEO pay for some
time now. How about this Motley Fool report from their most recent shareholder
[Shareholders] showed disdain for what they considered to
be excessive compensation approved by the company's board for its Chairman and
CEO Aubrey McClendon. As a result, with the well-known proxy advisor
International Shareholder Services
urging that he be removed from the board, McClendon garnered about 78% of the
votes, compared to the 96% he captured when he last ran in 2008. Separately,
about 58% of the shareholders cast a nonbinding vote for Chesapeake's pay plan.
Of course, Chesapeake already has a staggered board.
But, if the voices of corporate governance types get too loud, it might
face the prospect of having to destagger its board and that would be ...
inconvenient. Now, the Oklahoma state legislature is in the process of
taking away this threat. By adopting an amendment to the corporate law
that will require firms like Chesapeake to maintain staggered boards, it will
make it impossible for shareholders to push an amendment to remove the
And that's the problem with the current state of
competition amongst the states for incorporations. When states think
about their corporate codes, more often than not, they are amending them in
response to particular lobbying efforts by management - for example Michigan covered itself in glory last year when it adopted
a defensive provision in its statute to help out a Michigan insurer.
These aren't efforts to compete on policy, rather they are more like special
interest legislation. Why else would the Oklahoma legislature take up
this issue of staggered boards? I mean, is requiring staggered boards in
your publicly-traded firms really front-and-center on anyone's agenda these days?
If that's the state of competition for incorporations,
I'm happy staying in Delaware.
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