Corporate Governance

Shareholder Proposals and the North Dakota Publicly Traded Corporations Act

By J. Robert Brown

In the veritable race to the bottom, Delaware controls the corporate law of most public companies.  The state, including the courts, has developed a law that is decidedly anti-shareholder in approach.  We will explore this topic later this week or early next with a discussion of a recent case out of Delaware. 

One of the interesting experiments to counter this trend has been the decision by North Dakota to adopt the Publicly Traded Corporations Act.  For companies that incorporate under the Act, shareholders have greater rights.  Moreover, the Act limits the discretion of the board in some circumstances, particularly those concerning poison pills.  We have posted on this law. 

As we have noted, shareholders benefit from incorporating under the law.  It is management, however, that ultimately must decide whether to reincorporate in a state and management has few if any incentives to reincorporate in a state that takes away some of its discretion and authority.  The only hope for shareholders is to adopt a shareholder proposal under Rule 14a-8 calling on management to reincorporate under the law.  We have noted this possibility before.  Moreover, the staff at the Commission have declined to authorize the omission of these proposals.

With that in mind, we note the report at RiskMetrics about the first shareholder proposal seeking reincorporation in North Dakota.  The proposal was submitted to The Hain Celestial Group.  As RiskMetrics notes, these types of proposals have received solid support in the past.  The most recent spate of reincorporation proposals, however, were designed to move a company to a jurisdiction where majority voting was permitted.  This is an entirely different matter.  It is not likely to pass but a strong showing will perhaps let management of public companies know that they should consider more seriously expanding shareholder rights. 

Full post as published by The Race to the Bottom on August 14, 2008 (boomark / email).