I just had the privilege of participating in Columbia Law School’s M&A conference, on a panel with Ed Rock of NYU, Eduardo Gallardo of Paul Hastings, and John Mark Zeberkiewicz of RLF, moderated by Dorothy Lund of Columbia, to discuss SB 21 and its likely impact going forward.

In this post, I’ll elaborate on some stuff I said at the panel.

After SB 313 passed authorizing shareholder agreements – ostensibly to conform the law with “market practice” – Gladriel Shobe, Jarrod Shobe, and William Clayton found that the law in fact went much further than actual market practice to authorize a broad array of contracts that are somewhere between uncommon and nonexistent.

That kind of thing is what gives rise to the suspicion that when the Delaware Corporation Law Council recommends legislative amendments, it does so not as neutral arbiters, but as representatives specific clients who desire particular legislative outcomes. And while there is nothing new or surprising about lobbyists advocating for legal changes that benefit their clients, the CLC is not supposed to be acting as a lobbyist when it participates in the legislative process. In some ways, then, SB 313 always read to me as the “no client left behind act” – drafted to ensure that every individual client’s idiosyncratic contractual preferences would be authorized. Similarly, SB 21 appears to have various easter eggs that were added so that attorneys could preserve arguments on behalf of their clients, which raises the question whether, even if one concedes that some loosening of the cleansing standards was necessary to preserve Delaware’s franchise, every single bit of SB 21 was necessary, or whether the law went further than it needed to because the law firms were, well, conflicted fiduciaries (or, as Ed Rock proposed on the panel, some corporate governance entrepreneurs saw an opportunity to enact their preferred vision of how corporate law should operate). For example, at one point in the process of drafting SB 21, it was proposed that controlling shareholders be required to comply with dual cleansing mechanisms (shareholder vote and independent director vote) for any transaction that organically requires a shareholder vote, and that was rejected in favor of the narrower rule that only take privates require both cleansing mechanisms. Was it truly, absolutely necessary to reject the broader rule to preserve the franchise?

We don’t know, of course, but this is exactly why Charles Whitehead has proposed reforms to Delaware’s legislative drafting process to treat the CLC more like an administrative agency. Ed Rock and Marcel Kahan have also argued that when the legislature aggressively acts to overrule the courts, Delaware loses its legitimacy to make corporate law for the country – after all, if it’s just a legislative process rather than a technocratic judicial one, there’s no reason it can’t be done at the federal level.

Further to that point, the legislature’s recent aggression may very well have functioned as an invitation for SEC Chair Paul Atkins to start making his own demands of Delaware. And if Delaware is simply going to enact whatever is asked by the SEC, then there’s really very little purpose to Delaware playing the role that it does.

Anyway, on that note, a plug! My paper, The Legitimation of Shareholder Primacy has been published in the Journal of Corporation Law, and the completed version is now available online. You may recall that it was originally posted before SB 21 had been proposed; the final version incorporates discussion of those amendments and other developments since then. Read it again, for the first time.

And another thing. New Shareholder Primacy podcast! This week, Mike Levin talks to Kyle Pinder about shareholder proposals and Delaware law. Here at Spotify, here at Apple, and here at Youtube.