March 9, 2011
Pennsylvania and Ohio "Compete," But Delaware Exodus Unlikely
Westlaw yesterday published an article by Erik Krusch called Corporate Governance: So We Loaded Up the Family and Moved to Ohio?! Here's the beginning:
Low corporate taxes and high corporate governance standards combined with discretion for directors sounds a lot like Delaware. According to Abercrombie & Fitch, however, shareholders will get all of this and more by reincorporating from Delaware to Ohio. In recent years, several other companies and shareholders have attempted to move from Delaware to other U.S. domiciles such as Ohio and Pennsylvania. So the question is: has Delaware met its match in either Ohio or Pennsylvania?
Short answer: No. States can make changes to make their state law more attractive on the margins, but it's not easy to make it worth massive changes for all or most companies. Certain state changes may attract some interest, but it's not likely to have any serious impact on Delaware's dominance. Perhaps there is an idea out there to make that happen, but I haven't seen it or come up with it myself.
As discussed previously, North Dakota put its hat in the ring a few years ago, but only one company, American Railcar, made the switch. And that company was controlled by Carl Ichan, so the proposal was in good shape with his support. As the Krusch article notes, despite several proxy proposals to reincorporate in North Dakota in prior years, there have been no such proposals this proxy season.
Now that Carl Icahn has decided to stop investing other people's money, maybe he will refocus his energy on bringing some companies to the Northern Plains. But probably not.