September 12, 2011
Iowa's race to the bottom
Ted Allen at the ISS Corporate Governance Blog highlights a common trend in the corporate law -- the depressing race to the bottom that is characterized by state legislatures responding to management demands for protection from their own shareholders. Iowa has now joined the list of states that now require classified boards of their public companies. (h/t Broc Romanek)
Earlier this year, state lawmakers approved an amendment to the Iowa Business Corporations Act (IBCA) that requires public companies with more than 2,000 shareholders to maintain staggered board terms until Dec. 31, 2014. The law, which took effect March 23, provided a 40-day period during which a company's board could unilaterally vote to opt out of the classification mandate.
It appears that this legislation was passed to help Casey's General Stores, an Iowa-incorporated firm that faced an unsuccessful proxy fight in 2010. Casey's, an S&P 600 small-cap firm, did not opt out of the law and since has adopted a staggered board structure. The company has strong state legislative connections. One Casey board member, Jeffrey M. Lamberti, is an attorney who served in the Iowa Legislature from 1995 to 2006, which included three years as president of the Iowa Senate. His father is Donald Lamberti, the company's founder.
The classified board law was adopted despite the opposition of some Iowa corporate lawyers. In a Feb. 16 memo, the Iowa State Bar Association's Business Law Section Council observed that the legislation "will dramatically reduce the odds" that companies like Casey's would face proxy fights, but warned that it "would eliminate the voice of shareholders [from deciding whether to adopt staggered board terms] and leave that decision solely to management."
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