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Ann Lipton

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Ann M. Lipton is a Professor of Law and Laurence W. DeMuth Chair of Business Law at the University of Colorado Law School.  An experienced securities and corporate litigator who has handled class actions involving some of the world’s largest companies, she joined the Tulane Law faculty in 2015 after two years as a visiting assistant professor at Duke University School of Law.

As a scholar, Lipton explores corporate governance, the relationships between corporations and investors, and the role of corporations in society.  Read more.

There is always something new to discover.

For example, I was reviewing the CLC version (as one does), and I noticed that in the sections providing for stockholder approval (either for director-conflict transactions, or controller-conflict transactions), language was deleted that would specifically have required stockholders be informed as to the nature of a director’s conflict and involvement in the negotiation of the transaction, and the “material facts” of a controller transaction – though this language was retained for approval at the board/committee level. Though stockholder approval must still be “informed,” I rather suspect the deletions were intended to assist with future arguments that conflicts, or flawed “negotiations,” do not undermine the effect of a stockholder vote, when the stockholders were at least informed as to the material terms of the deal.

Screenshots of the relevant deletions, here:

And here:

This is, I believe, the language included in the version of the bill that passed the Delaware Senate.

In recent years, of course, the Delaware Supreme Court has rejected many attempts at stockholder ratification on the grounds that various conflicts or negotiating flaws were concealed from stockholders, and these were the grounds on which Chancellor McCormick concluded that the stockholder vote…

Sometimes I post for a naive audience, sometimes I want to get something out quickly and assume a more sophisticated audience, and with so much movement on SB 21 right now I’m opting for the latter.

So, first – the CLC offered some proposed changes to the law, which you can see here. (Mike Levin and I had just recorded a Shareholder Primacy podcast about the original flavor SB 21; that will still drop tomorrow morning; you can be the judge whether the overall assessment remains good in light of the proposed amendments). Brian Quinn says all that needs to be said about the CLC’s concept of retroactivity; I’ll just highlight what I think is significant.

Under the original version of the law, if the transaction did not involve a controlling shareholder, board level cleansing was achievable even if the board was majority-conflicted. As long as the disinterested directors voted in favor of the deal, it was cleansed – meaning, a board 4-1 conflicted could still cleanse the deal, so long as that single director voted in favor. If the transaction did involve a controlling shareholder, board-level cleansing required the creation of a majority-independent committee, but there was…

Why Are Delaware Democrats Trying to Give Elon Musk $55 Billion?

For over a century now, Delaware has been the home of most large American corporations. The state government has set up an incredibly corporate-friendly regulatory, tax, and legal regime, and so big companies locate their official headquarters there. Many trusts and on-paper shell corporations are Delaware-based as well, for the same reasons. It’s a classic race-to-the-bottom dynamic where, because the federal government does not set a consistent baseline, states competed as to who could pander the hardest to big business, and Delaware hit bottom first. Most Fortune 500 companies locate there, and in return the state gets about a third of its budget from corporate franchise fees and taxes.

But Delaware’s incorporation laws also provide some rights to shareholders. While shareholders have extremely limited ability to sue over the business judgment of corporate managers, corporations must prioritize them and treat them fairly.

…

So on Monday I threw up a rather inflammatory post about SB 21, which would dramatically rewrite Delaware law.  (Here’s a post by Eric Talley, Sarath Sanga and Gabriel V. Rauterberg, which takes a more measured tone).

As I’ve talked to people about the law, the first question I get asked is, “Is this a good thing or a bad thing?”  And that’s a really difficult question to answer, because “good” can have many meanings in this context.

Is this good for shareholders?

Well, I find it very difficult to take seriously the notion that the procedures written into the law will have any protective effect for shareholders.  The independence standards of the exchanges are notoriously weak; that’s why ISS and Glass Lewis frequently adopt their own definitions of independence, so much so that the Business Roundtable accused them of proxy fraud. The cleansing standards would insulate transactions by a board that is entirely captured by a counterparty, so long as a single member of that board is independent and votes with the others (a standard that one can easily see being transferred to the demand excusal context).  The definition of controlling shareholder would exclude people…

I suppose it’s gratifying that the proposed changes to Delaware law support the thesis of my new paper, The Legitimation of Shareholder Primacy.  There, I argue, among other things, that Delaware imposes procedural limitations on managerial behavior that function more as a performance to the general public, to grant corporations a social license to operate, than as real constraints.  So, of course, as soon as those limitations started to have even the tiniest bit of actual bite – and in an environment where the prospect of federal preemption is largely nil, and corporate power has reached the point where a social license to operate may no longer be necessary – managers threaten to depart the state, and Delaware proposes of package of statutory changes that undo certainly the last 10 years of Delaware jurisprudence, if not the last 50, in favor of a model of corporate self-policing.

The story actually begins last year, when, in response to the Moelis decision, Delaware rushed to amend its corporate code to add Section 122(18), permitting corporate-governance-by-contract.  At the time, I asked – quite seriously – what is the value of the corporate form? 

This is very much a debate that’s been…

Lately, several media and news organizations have “settled” somewhat frivolous lawsuits filed by President Trump, raising suspicions in at least some minds that the settlements were a rather unsubtle form of bribery, intended to win Trump’s favor with respect to other aspects of their businesses.

I am not particularly knowledgeable about bribery laws but let us assume, for the moment, that if these settlements were, in fact, shams to funnel money to Trump in exchange for regulatory favors, that would be illegal under some law somewhere. And, given that Trump is, you know, president, I also assume that, to the extent those laws are federal, charges are unlikely to be pursued by federal authorities.

But Disney/ABC, and Meta – not X – are incorporated in Delaware. And Delaware makes it a breach of fiduciary duty for corporate managers to intentionally break the law. I’ve blogged about the doctrinal difficulties that Caremark creates for Delaware (and they’re discussed extensively in my new paper, The Legitimation of Shareholder Primacy, now forthcoming in the Journal of Corporation Law), but whatever the doctrine’s flaws, there remains the intriguing possibility that an enterprising shareholder might bring a lawsuit – or even…

Maxine Eichner of UNC has organized a petition, available at this link, for law professors to communicate the urgency of the constitutional crisis that is facing the country. More than 400 law professors have signed as of this posting. If you would like to add your name, you can do so by emailing maxine.eichner@gmail.com. You are invited to share the link with others who may be interested in signing.

Lotta news lately about companies seeking to leave Delaware, so it’s amusing to see a company fighting to get in. 

Daktronics is incorporated in South Dakota of all places (is it lonely there?).  South Dakota mandates cumulative voting, which makes it much, much easier for a minority blockholder to gain board representation, as Matt Levine explains here.

And such a blockholder has emerged, in the form of Alta Fox.  Alta Fox is both a shareholder and a holder of Daktronics notes, but the notes are convertible into shares, so on a fully diluted basis, Alta Fox owns over 11% of Daktronics’ voting power.  Given that, at least some of Alta Fox’s director nominees would likely have been seated in a proxy contest but – plot twist! – Daktronics called a special meeting of its shareholders to vote on reincorporation to Delaware, where cumulative voting is not the default.

And, as I understand it, Daktronics is calling for that vote before Alta Fox’s shares convert, so that Alta Fox will be heading into the meeting with less than its full voting power. In response, Alta Fox filed a lawsuit (in federal court, presumably because it just likes the judges…