Stephen Gilmore, the CIO of the $538 billion California Public Employees’ Retirement System, Sacramento, said amendments to Delaware corporate law this week that favor companies over shareholders will leave institutional investors focused on private markets allocations where they’ll have the opportunity to hammer out better governance provisions.
In a statement on the pension giant’s social media page March 27, Gilmore said “we are disappointed in the decision made by Delaware legislators, which reduces governance rights for minority shareholders.”
On March 26, Delaware’s legislature approved and Governor Matt Meyer signed into law revisions to Delaware corporate law which expand safe harbor provisions for controlling corporate owners, a move proponents said was needed to protect the state’s status as the legal home of roughly two thirds of top U.S. companies.
The law was drafted and, critics contend, rammed through the legislature in less than six weeks following a late January report that Meta CEO Mark Zuckerberg was considering moving his company’s state of registration to Texas from Delaware, roughly a year after Tesla CEO Elon Musk did the same.
With franchise fees for companies registering in Delaware coming to more than $2 billion a year, or roughly 30% of the state’s annual outlays, the bill, SB 21, passed Delaware’s senate with overwhelming support and then the lower house with a healthy majority despite vehement opposition from institutional investors at home and abroad.
Mr. Gilmore, in his statement, suggested the weakening of Delaware’s protections for minority shareholders would force institutional investors to take corporate governance into their own hands.
“The change makes it more likely that institutional investors like CalPERS will continue to gravitate toward private market investments where better alignment and governance rights can be obtained via contractual provisions,” he said.
