Proposed Delaware legislation would threaten the state’s status as America’s “default corporate law regime” and harm average shareholders, writes James R. Copland, director of the Center for Legal Policy at the Manhattan Institute.
“In a May 8 decision, the Delaware Supreme Court permitted a corporation to include in its bylaws a ‘loser pays’ provision for shareholder litigation that would require a shareholder suing the corporation to reimburse the company its legal fees if the shareholder is unsuccessful in the lawsuit,” writes Copland in Investors Business Daily.
“On June 3, Democratic lawmakers allied to the trial bar introduced a proposed law, Delaware Senate Bill 236, that would reverse the court’s decision.”
Copland notes that this proposed legislation makes little sense, given that Delaware is the “default corporate law regime” for the nation.
“A majority of all publicly traded companies, and more than 60% of those in the Fortune 500, are incorporated in the state,” adds Copland. “About 20% of Delaware’s state revenues derive from corporate franchise fees, so why would legislators be so quick to risk the state’s status by second-guessing the state’s highest court on a corporate-law question?”
He notes that the proposed legislation would “short-circuit the court’s ability to tailor the legal rules” and instead adopt a one-size-fits-all rule “that helps trial lawyers but hurts the average shareholder.”
For that reason, and for the sake of American investors, Copland hopes that Senate Bill 236 “soon rests comfortably in the legislative graveyard.”
Read the full op-ed here.