Legal News Headlines

 
Copyright 2008 The Seattle Times Company

 May 11, 2008 Sunday
Fourth Edition

SECTION: ROP ZONE; Business; Pg. C6

LENGTH: 640 words

BYLINE: Maureen Milford, The (Wilmington, Del.) News Journal

BODY: 

WILMINGTON, Del. When it comes to selling Delaware as the pre-eminent legal home for Corporate America, state Supreme Court Chief Justice Myron Steele knows how to seal the deal.

Last summer, the justice hosted an elegant dinner at his Delaware farm for two Australian lawyers who were there to learn about the latest developments in Delaware law.

Two justices and a senior state leader were on hand to schmooze and extol Delaware as the Tiffany of the incorporations business.

Such are the lengths to which Delaware jurists and state officials go to nurture the state's golden goose, an incorporations stronghold that provides the state with about one third of its $3.3 billion in annual revenue. For 109 years, Delaware has cultivated its role as the best place to incorporate by carefully tweaking its constitution, laws and court.

Today, 61 percent of the country's Fortune 500 companies are incorporated in Delaware (and 54 companies from Washington state are incorporated there).

But corporate scandals, outrage over lavish executive-pay packages and concern that the system is tilted toward protecting management have led to calls for federal intervention. A rising chorus of powerful lawmakers has championed federal rules for how companies govern themselves, something historically covered by state law. Congress could pass a federal incorporations law that would take the entire business from Delaware.

"Why are we allowing a state with an enormous financial interest to set the policy of corporate America?" said William Clark, a lawyer at Drinker Biddle & Reath in Philadelphia, who wrote a shareholder-friendly statute for North Dakota last year.

So prominent is Delaware in corporate law that its rules largely determine the internal workings of most large U.S. companies.

The Delaware State Bar Association's corporations-law section, made up of hundreds of the most respected corporate lawyers in the world, constantly monitors developments and makes recommendations to lawmakers after careful deliberation, lawyers said. Nearly every year for the past 40 years, the state has made some adjustment to the corporate code.

As a result, Delaware remains the incorporation capital, lawyers said. Its law has become the nation's gold standard because it carefully balances the rights of both shareholders and managers, they said. And they said the perception that Delaware panders to management to get taxes and fees is not based on fact.

"We're trying to create the best corporation law we can create," said Edward Welch, chairman of the corporations-law section and a corporate lawyer with Skadden, Arps, Slate, Meagher & Flom in Wilmington, Del.

If Delaware lost its incorporation business, "Overnight we would go broke," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

Others play down the risk, noting that Delaware has faced threats from Washington, D.C., nearly every decade over the past century.

Still, federal intervention on highly charged shareholder issues, such as having a voice in how much executives are paid, is "something that's in the air," said Richard Geisenberger, Delaware's assistant secretary of state and director of corporations.

"There's a lot of talk about it among the people who make corporate governance their business," said Doreen Kelly Ruyak, director of marketing and development with the National Association of Corporate Directors in Washington. "There's an incredible amount of tension between company shareholders and boards."

Some lawyers are calling for Delaware to throw water on the fire before the national elections by tweaking the state's corporate law to address growing concerns among stockholders, including their desire to have a voice in what top managers are paid.

Seattle Times news researcher Gene Balk contributed to this report.

GRAPHIC: photo; Ron Soliman / The (Wilmington, Del.) News Journal, 2007 : Delaware's Chief Justice Myron Steele, center, with Australian lawyers David Friedlander, left, and Stephen Minns. (0404679485)

LOAD-DATE: May 12, 2008