Delaware's Top Five Worst Shareholder Decisions for 2014 (#1: The Delaware Courts and the Continuing Lack of Diversity)
With the actions of the Delaware Supreme Court, it was a tough decision as to what should be the worst development for shareholders in 2014. The continued lack of meaningful diversity, however, still has to top the list.
At the beginning of 2014, the Chancery Court and Supreme Court in Delaware had no meaningful diversity. Of the 10 jurists, only one was a woman. There were no minorities. The judges for the most part had a similar background, including attendance at private law schools (or pseudo private schools such as UVA) and experience at firms that mostly defended management. National corporate law fell to this undiverse pool of judges.
There was a fair amount of turnover during the year, including one opening on the Chancery Court and three on the Supreme Court. The opportunity existed, therefore, for an increase in diversity. It didn't happen.
Chancellor Strine was elevated to the Supreme Court and confirmed in January 2014 (replacing Myron Steele). In April, Andre Bouchard replaced Leo Strine as Chancellor. Later in the year, Justices Carolyn Berger and Jack Jacobs stepped down from the Supreme Court. In July, Justice Jacobs was replaced by Karen L. Valihura, a former partner at Skadden Arps who received her law degree from the University of Pennsylvania. For a brief and shining moment, the Supreme Court included two women.
That, however, did not last. Justice Berger left the Court in September and was replaced by James T. Vaughn Jr., a judge from the state's Superior Court (and a Georgetown Law graduate). The Delaware courts were back to where they started at the beginning of 2014.
Nor does that look to change. Justice Ridgely has announced that he will retire from the Court in 2015. Speculation on possible candidates indicates that the ultimate appointment will add no racial or gender diversity to the Court.
Delaware courts set the corporate law for the nation. They frequently issue management friendly decisions. In many ways, they resemble the management of the companies that they routinely see in their courts. Boards of large public companies lack meaningful racial/gender diversity. Women represent about 14% of these directors, minorities represent around 10%. Companies have been criticized for this lack of diversity yet the Delaware courts are even less diverse.
What about other benchmarks? The Delaware courts do not compare well on diversity with the federal bench. According to a recent study, as of March 2014: "Of the active U.S. circuit court judges, 51.2% are white men, 25.3% are white women, 16.7% are non-white men, and 6.8% are non-white women."
What about diversity in the state? There is, of course, no shortage of women in Delaware. The population of state is 51.6% women. How about minorities? About 30%, including 22.1% African American; 8.7% Hispanic; and 3.6% Asian. In other words, the bench in Delaware is nowhere near as diverse as the state's population.
Who knows what difference, if any, greater diversity would make on the decisions of the Delaware courts. At a minimum, it would at least create the appearance of a more inclusive decision making process, providing some additional credibility to the decisions of these courts.