With corporate shareholder rights governed by state law, the Securities and Exchange Commission has a limited role to play.
That keeps all eyes on Delaware, where an estimated two-thirds of Fortune 500 companies and 83% of all companies launched in 2013 are incorporated.
Delaware officials realize they are walking a fine line, with their state's business-friendly reputation at stake.
“There is concern that there is some litigation that is unwarranted and wastes shareholder and company dollars. But fee-shifting bylaws might also deter meritorious litigation,” Chief Deputy Secretary of State Richard Geisenberger said in an interview. “So how do you balance those two things? We are trying to figure out where are there grounds for agreement and to what extent do you change things.”
“I think at the end of the day we will find consensus,” said Mr. Geisenberger. With trillions of dollars invested in Delaware corporations, “you're not going to see dramatic swings in our law one way or the other. It will be balanced between corporations and investors,” he said.
In the meantime, institutional investors want more of a say in any changes that companies might be contemplating.
“A provision like this — shifting risk to the owner — should require shareholder approval, and management should not be able to adopt it without first submitting it to ownership for approval,” said Chris Supple, deputy executive director and general counsel of the $60.7 billion Massachusetts Pension Reserves Investment Management Board, Boston, and co-chair of the securities litigation committee of the National Association of Public Pension Attorneys.
“Whether that's accomplished by statute, court decision or shareholder vote, that's the way the issue should resolve, with unilateral action by management not permitted,” said Mr. Supple.