SB 21 - Once more into the DE Breach

I posted a bunch last Summer during the whole SB313 brouhaha. I thought that perhaps that legislative shenanigans in Dover wouldn't draw my attention again, but here we are. Last week, SB 21 was revealed. It's gotten a bit of attention, and I won't go into all of it right now, but let me offer up some initial thoughts on something I was just thinking about.

I was just reading the MBCA (cause that’s what I do on a Wednesday afternoon, leave me alone), and had a thought. The MBCA’s version of proposed §144 can be found in §§8.61-8.63. As it turns out, SB 21 is less protective of minority shareholders than the MBCA.

Under both proposed §144 (as amended) and §8.62 director action can cleanse an interested director transaction. Under §8.62, a majority of all the disinterested directors must approve the transaction or a majority of a disinterested special committee where all the committee members are disinterested must approve the transaction. Compare that to the proposed §144 which requires that a transaction be approved by a special committee of directors, which is composed of a majority disinterested directors. There. Right there. The difference is subtle but real. See it?

Shareholder approval provides an alternative path under both the proposed §144 and the MBCA. Again, the differences are subtle, but important. When seeking to cleanse an interested director transaction under the MBCA, §8.63 requires a majority of disinterested shares entitled to vote to approve the transaction. Compare that with §144, which requires an affirmative vote of a majority of the votes cast by the disinterested stockholders. Catch that? You don't really have to squint. It's right there.

Not sure what to do with that other than note that after SB 21 passes, almost every other state (e.g. every MBCA state, including the good 'ole Commonwealth of Massachusetts), will be better for public shareholders than DE and NV.  Frankly, it's amazing to me that Delaware is deciding to leap-frog itself over MBCA states and go from a protective position to a less protective position. It's like an own goal. Cool.

Don't think people won't notice.  They're gonna notice. (Ropes memo offering up as an alternative for DExit.)

-bjmq