The Blog is named the Race to the Bottom for a reason.  It is a way of telegraphing that a principal philosophy of the Blog is the belief that much of corporate law has been on a downward spiral, weakening standards of behavior for directors to the detriment of shareholders.  It is a topic that I have in my article, The Irrelevance of State Corporate Law in the Governance of Public Companies.  Sometime later in the summer or the early fall, we will illustrate this proposition through a study of the evolution of waiver of liability provisions under state law and their almost universal adoption among companies in the Fortune 500.   

The race to the bottom does not explain all changes in corporate law.  There is a genuinely dynamic process among states, with Delaware often at the forefront.  Delaware, for example, became the first state to adopt a provision allowing for virtual shareholder meetings (although the provision was criticized by some shareholder rights advocates).  See 8 Del. C. § 211(a)(2).  The provision has been adopted in other jurisdictions, including Kansas, K.S.A. § 17-6501, and Wyoming, Wyo. Stat. § 17-16-701.  ICU Medical held a virtual shareholder meeting in May.  The proxy statement is here.  In this case, the existence of 50 state laboratories may well result in updated and more modern corporate law provisions.

But no corporation will reincorporate in Delaware solely because it permits virtual shareholder meetings.  What causes companies to move to Delaware (or other states to adopt conforming provisions) are reforms that do not arise out of experimentation or modernization but out of a desire to benefit management.  As my article above points out (at p. 331), the type of "reforms" that will encourage management to shift its state of incorporation are those designed to increase the discretion of the board (and executive management), are designed to reduce liability for management, and are designed to facilitate job preservation.  So, management cares less about virtual shareholder meetings (other states are adopting them slowly) but cares a great deal about waiver of liability provisions (something like 40 states adopted provisions allowing them within a few years after the first was adopted). 

It is here where the race to the bottom occurs most vigorously.  Delaware continuously reduces the rights of shareholders and increases the discretion of management.  While providing additional discretion, Delaware reduces the standards that subject management to liability.  In other words, it is discretion without accountability.

In this context, we will explore over the next few days (no doubt interrupted by current developments) the efforts by, of all places, North Dakota, to demonstrate whether it is possible for other states to engineer a race to the top.  The North Dakota legislature has adopted the Publicly Traded Corporations Act, a law that imposes on companies that opt in a number of pro-shareholder provisions.