- A controversial bill that could change the rules governing control of many of the world’s most powerful companies is close to passage.
- The bill, called Senate Bill 313, follows recent rulings by state judges, including one known as Moelis, who said shareholder agreements that transfer power from a single-person businesses are illegal.
- Critics of the bill argue that it will hurt small investors and only help larger players in the economy, like private equity firms.
This story was produced by Spotlight Delaware in a partnership with Delaware Online/The News Journal. To learn more about Spotlight Delaware, visit www.spotlightdelaware.org.
A bill that changes the rules regarding who can control many of the world’s most powerful companies was passed by Delaware lawmakers Thursday night despite controversy surrounding the measure and the implications it could have in the premier state .
A hearing Tuesday on the proposal included references to the popular HBO satire “Succession,” testy exchanges between representatives and statements from each side that Delaware’s dominant role in global capitalism could be in jeopardy.
“It really hurts our reputation as a neutral actor,” said Charles Elson, founding director emeritus of the Weinberg Center on Corporate Governance at the University of Delaware and a leading scholar in the field, in opposition to the bill during ‘a hearing of the House Judiciary Committee.
On the other side of the debate was Srinivas Raju, president of a group of private lawyers – called the Delaware State Bar Association Corporation Law Council – which regularly writes the laws that govern the operation of the 2 million legally registered businesses in the Delaware.
During his testimony, Raju said his group’s latest legislation, called Senate Bill 313, responds to recent rulings by state judges, including one known as Moëlis which declared that shareholder agreements that put the power of a company in the hands of a single individual are illegal.
Raju said these types of agreements are common and therefore need to be preserved.
“I think for decades companies have thought that these types of rights could be written into contracts,” he said.
But Raju’s assertion has been challenged by a wave of critics of Senate Bill 313, including dozens of law professors across the country, who also say the bill would harm small investors and would not Only the biggest players in the economy, such as private equity firms, would help. .
The state House of Representatives approved the bill Thursday by a vote of 34 to 7. The Senate had supported the measure unanimously, 20-0, with one absent, on June 13.
Although written by the Corporation Law Council, the bill’s technical sponsor — Senate Majority Leader Bryan Townsend, a Newark Democrat — said the legislation helps the state’s corporate law stand ” responsive and flexible, which attracts so many businesses to incorporate in Delaware.”
But the main opponent in the Delaware Legislature, Rep. Madinah Wilson-Anton, D-Bear, called the bill a “historic overreach” and said it was in response to a court ruling that did not has not yet been considered by the Delaware Supreme Court.
On Tuesday, Wilson-Anton asked Raju about two of his statements that the bill would not be the first to overturn a pending court case in Delaware and that companies and industry lawyers believed shareholder agreements in question were legal under Delaware law.
“I can personally tell the committee that I have seen several memos from years ago with a specific warning that these agreements are unenforceable,” Wilson-Anton said of communications between lawyers and businesses.
Wilson-Anton then asked Raju why the lawyers who drafted such shareholder agreements for their corporate clients didn’t “know the law?”
“I have testified, as a representative, to what I believe to be the prevailing belief among business and market practitioners,” Raju said in response. “And I think I stand by what I said.”
Wilson-Anton ended her questioning of Raju by asking: “Who is lobbying you?
This issue brought to public debate a long-standing question about the origins of the bills that would become part of Delaware’s legal framework, known as General Corporation Law.
“Can you share some examples of people who are unhappy with this (bill) because they think it doesn’t go far enough?” Wilson-Anton added.
“We hear from everyone across the country, businesses, investors, various practitioners and lawyers across the country,” Raju said in response.
Democrat Bear then pushed Raju to be “more specific,” before the chairwoman of the House Judiciary Committee intervened.
“He must be allowed to answer his question. And it will be done,” said Speaker Krista Griffith, D-Fairfax, who supported Raju’s bill.
A tension lingered in the air then – becoming common in recent years as Wilson-Anton, a political progressive, highlighted a growing divide between friendly Democrats and those critical of the surviving corporate and lawyer sector. of Delaware’s role as the primary legal domicile of global commerce.
It’s a role that also brings the state about a third of its government revenue each year in taxes and fees related to the incorporation sector.
Following the Wilson-Anton exchange, Rep. Cyndie Romer, a Newark Democrat, began her comments by noting that she was sweating and nauseous over the seriousness of the debate, and what she said was her concern to live “in a country where corporate power (is) very much out of control.
“I really want to do the right thing. And it feels like both sides have very compelling arguments,” Romer said.
She also noted that some themes of the bill in question remind her of “Succession,” the popular HBO series about controlling a fictional media empire, which she watches “a little too much.”
Romer then called Elson, a retired UD professor, who shared his concern that the bill could harm what he called the historic balance of shareholder rights in Delaware. That, in turn, could lead the federal government to try to take over Delaware’s role as the primary creator of corporate law, he argued.
In subsequent testimony before the committee, Usha Rodrigues, chair of the department of corporate finance and securities law at the University of Georgia School of Law, also referenced the television series, saying the project of law could allow a board of directors to strike a deal with a favorite. shareholder, like the character in the series Logan.
“The board as a whole makes a side deal, but then it gets stuck,” she said. “And this agreement allows Logan Roy to continue to tell the board what to do.”
Griffith, the committee chairwoman, then interrupted Rodriques’ comments, urging her to move away from talking about a fictional series.
“Can we please stick to SB 313 and the issues at hand, because I care about the people listening here that we’re talking about real law that impacts real people, real companies, and frankly, it bothers me that we’re talking. about Logan,” Griffith said.
With both legislative bodies approving the bill, it will now head to Gov. John Carney’s desk.
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