Comments on: The North Dakota Experiment http://blogs.law.harvard.edu/corpgov/2007/04/23/the-north-dakota-experiment/ Sponsored by the HLS Corporate Governance Program Thu, 05 Nov 2009 16:01:21 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Arthur Mboue http://blogs.law.harvard.edu/corpgov/2007/04/23/the-north-dakota-experiment/comment-page-1/#comment-2906 Arthur Mboue Mon, 30 Apr 2007 20:16:48 +0000 http://blogs.law.harvard.edu/corpgov/2007/04/23/the-north-dakota-experiment/#comment-2906 I believe this ND poison pill is not a pilot program. Any State has a law given full discretion to the board of director to prevent 'loot' takeovers. The problem is neither the poison pill nor the tender over is allowed to paralyze the firm. But, so often, the poison pill strategy is used to perpetuate the board in power against shareholders best interests and attractice premium offers. This breach of fiduciary duty by the board of directors is always endorsed by State Judges who are running for re-election. It is why I always favor a universal corporate law (for example Delaware CGL can become national) on the hands of lifetime US judges' rulings. Arthur Mboue I believe this ND poison pill is not a pilot program. Any State has a law given full discretion to the board of director to prevent ‘loot’ takeovers. The problem is neither the poison pill nor the tender over is allowed to paralyze the firm. But, so often, the poison pill strategy is used to perpetuate the board in power against shareholders best interests and attractice premium offers. This breach of fiduciary duty by the board of directors is always endorsed by State Judges who are running for re-election. It is why I always favor a universal corporate law (for example Delaware CGL can become national) on the hands of lifetime US judges’ rulings.
Arthur Mboue

]]> By: William H. Clark, Jr. http://blogs.law.harvard.edu/corpgov/2007/04/23/the-north-dakota-experiment/comment-page-1/#comment-2872 William H. Clark, Jr. Mon, 30 Apr 2007 15:46:28 +0000 http://blogs.law.harvard.edu/corpgov/2007/04/23/the-north-dakota-experiment/#comment-2872 Professor Ribstein's question about "whether corporations actually want these reforms" can't be answered until he tells you who he thinks is entitled to speak on behalf of the corporation. Will corporate managements want these reforms? We all know the answer is "no." Will shareholders want these reforms? We similarly know the answer is "yes." So the real question is who is entitled to make the decision. But his questions about the Delaware court system seem the most inapposite. When Delaware is competing with other states in offering a management-friendly corporation law, its judges certainly give it a commanding advantage. But for the first time we have in North Dakota a state that has chosen to compete with Delaware on a different basis. North Dakota poses a challenge - and a problem - for Delaware that Delaware has never faced before. For the first time, shareholders have a real choice: North Dakota offers them a full set of rights designed to make sure the board of directors is fully committed to one goal: enhancing the value of the company. Delaware, on the other hand, does not offer those rights and tilts the playing field in the direction of management, but says trust our judges to protect you from management over-reaching. Why would shareholders prefer a law with limited rights, but interpreted by experienced judges, when they can have a law with the full set of rights that North Dakota provides? When you understand what the North Dakota law offers, you understand why the Delaware judiciary will not significantly influence the choice of whether to incorporate in North Dakota. Professor Ribstein’s question about “whether corporations actually want these reforms” can’t be answered until he tells you who he thinks is entitled to speak on behalf of the corporation. Will corporate managements want these reforms? We all know the answer is “no.” Will shareholders want these reforms? We similarly know the answer is “yes.” So the real question is who is entitled to make the decision.

But his questions about the Delaware court system seem the most inapposite. When Delaware is competing with other states in offering a management-friendly corporation law, its judges certainly give it a commanding advantage. But for the first time we have in North Dakota a state that has chosen to compete with Delaware on a different basis. North Dakota poses a challenge – and a problem – for Delaware that Delaware has never faced before. For the first time, shareholders have a real choice: North Dakota offers them a full set of rights designed to make sure the board of directors is fully committed to one goal: enhancing the value of the company. Delaware, on the other hand, does not offer those rights and tilts the playing field in the direction of management, but says trust our judges to protect you from management over-reaching. Why would shareholders prefer a law with limited rights, but interpreted by experienced judges, when they can have a law with the full set of rights that North Dakota provides? When you understand what the North Dakota law offers, you understand why the Delaware judiciary will not significantly influence the choice of whether to incorporate in North Dakota.

]]> By: PG http://blogs.law.harvard.edu/corpgov/2007/04/23/the-north-dakota-experiment/comment-page-1/#comment-1169 PG Thu, 26 Apr 2007 15:21:44 +0000 http://blogs.law.harvard.edu/corpgov/2007/04/23/the-north-dakota-experiment/#comment-1169 "Just as we didn't need North Dakota to invent the poison pill--we had Marty Lipton--we don’t need ND to eliminate it." The poison pill is a particular defense against takeovers, but most states also enacted anti-takeover statutes. Given the involvement of a PA lawyer in ND's new law, I'm surprised that they didn't follow PA in allowing people to opt out of some or all provisions. (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=5812) While there's not much to be done about the quality of judges in a state, except (as you suggest) to avoid them by going to arbitration instead, couldn't ND skip the step of developing a sophisticated corporate law bar by being more permissive about allowing out of state attorneys to appear in their courts? My understanding is that DE charges quite a lot of money, per attorney, for this privilege. No doubt that ND attorneys would set up a howl at losing their quasi-monopoly, but perhaps this would incentivize them to develop special expertise in ND corporate law in order to compete with out-of-state attorneys. (ND Lawyers: We know our law, and we don't need a chartered jet to get here.) “Just as we didn’t need North Dakota to invent the poison pill–we had Marty Lipton–we don’t need ND to eliminate it.”

The poison pill is a particular defense against takeovers, but most states also enacted anti-takeover statutes. Given the involvement of a PA lawyer in ND’s new law, I’m surprised that they didn’t follow PA in allowing people to opt out of some or all provisions. (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=5812)

While there’s not much to be done about the quality of judges in a state, except (as you suggest) to avoid them by going to arbitration instead, couldn’t ND skip the step of developing a sophisticated corporate law bar by being more permissive about allowing out of state attorneys to appear in their courts? My understanding is that DE charges quite a lot of money, per attorney, for this privilege. No doubt that ND attorneys would set up a howl at losing their quasi-monopoly, but perhaps this would incentivize them to develop special expertise in ND corporate law in order to compete with out-of-state attorneys. (ND Lawyers: We know our law, and we don’t need a chartered jet to get here.)

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