Shareholder Bill of Right’s Act of 2009 and Delaware’s Dominance
Several weeks ago, New York Senator Chuck Schumer introduced the Shareholder Bill of Rights Act of 2009. The bill is just another shot across the bow in the battle to force corporate leadership to consistently act in a way befitting the economic and fiduciary responsibility they bear. The bill also fuels the debate raging over federal preemption of state corporate law and reopens state/federal wounds that have been poorly healing since the Sarbanes-Oxley Act was adopted in 2002. (The Shareholder Bill of Rights Act of 2009 was nicely summarized here by Professor Larry Cunningham, and Professor Larry Mitchell, also of George Washington Law School, published a recent opinion piece criticizing the bill.)
When the bill was initially proposed, I spoke about what the bill might mean in the context of the larger federalism discussion as it pertains to securities law and corporate governance. In my view, the state versus federal power issue raised by the bill is the really thorny issue, as opposed to any one provision of the bill.
To wit, corporate law and corporate governance regulation have historically been the province of the individual states. The questions of what boards must do and what corporations can do, for example, have historically been answered by resort to state law (common and statutory) as opposed to federal law. This allocation of authority has served various states well. Specifically, if a state is viewed as being a favorable place for corporations in terms of law or jurists, the state will attract many corporations, who will pay to the state incorporation fees and annual taxes. (Delaware, for example, has been well served by cultivating for itself a reputation as a state with prowess in corporate matters, both in terms of legislation and litigation. Delaware has drawn huge amounts of money in incorporation fees and franchise taxes from corporations.)
The notion, then, that Schumer’s bill could usurp some state authority over meaningful corporate law and corporate regulation issues does not sit well with all state legislators, jurists, and lawyers. These parties recognize that the bill could set a bad precedent for allocating power over corporate regulation and corporate law, which, in turn, could reduce the role or at least the perception of the role individual states play in corporate regulation. This, in turn, could reduce the prominence of any given state in the market for corporate incorporation.
At the same time, Sonia Sotomayor factors into this discussion because it is entirely possible that issues of federal jurisdiction (including the SEC’s jurisdiction) will be hot topics for the Supreme Court in the next ten years. Sotomayor has proven herself to be an able and thoughtful jurist on issues of business law, which are issues that often stymie the current Court. If jurisdictional questions and questions about the allocation of power come before the Supreme Court and Sotomayor is on the bench, my sense is that her reasoned judgment – having been honed in jurisdictions (SDNY and 2d Cir.) that deal regularly with big-ticket business issues – will hold weight with her colleagues.
So, while we could have a discussion about the individual provisions of the Shareholder Bill of Rights Act of 2009, I think it is even more important to be discussing the future of the state v.s. federal divide in corporate/securities law, and the role, if any, Sotomayor might have in shaping that future. There is big money at stake for all dogs in this fight, and it will be interesting to see how this unfolds.