Delaware corporations are the standard vessel for an interstate business in America. More than two-thirds of the Fortune 500 companies are domiciled there.
Last month, Former Attorney General Bill Barr opined in the Wall Street Journal that Delaware is on its way out because concerns about ESG are overriding the longstanding belief that “shareholder value [is] corporate law’s lodestar.”
Specifically, Barr points out that liability under the once-rare Caremark doctrine is on the upswing. Simultaneously, leading voices in Delaware are calling for Caremark application to ESG-type “risks.”
But would Delaware shoot the golden goose? Barr points to history for a comparison; New Jersey lost its role as a national leader in 1913 because Gov. Woodrow Wilson sought to make executes liable for generalized “irresponsibility.”
Barr finishes his thesis by claiming that the finished evolution in Delaware corporate law will look like this: “Companies not in step with ESG will have litigation risk under Caremark; companies that go overboard will be free from accountability.”
Will this play out? The WSJ published two responses, arguing that it would be foolish and thus incomprehensible for Delaware to deviate too far.
If ESG mandates are worrisome to your company, you might wonder “what I am missing if I move my company from Delaware?”
- Courts – The most irreplaceable component is The Court of Chancery, a professional judiciary that knows corporate law better than anywhere else on the planet. On the other hand, most corporations will go their entire existence without a complex corporate-law litigation where Delaware’s expertise could be outcome-determinative.
- Statutes – The Delaware General Corporation Law is elite in terms of management flexibility and clarity—but it’s no longer on top by itself. Red-state legislatures (including Ohio) have followed Delaware’s lead in making the statutes friendly to business.
- Taxes – It’s a misnomer for a business that operates outside of Delaware to believe there is a tax advantage for being formed in Delaware. In fact, there is probably an increased cost, as you’ll need to pay a statutory agent within Delaware’s borders, whereas a third party need not be engaged in the business’s home state.
- Filing and Privacy – Delaware makes it easy to file, and it requires very few disclosures for privacy purposes. But other states have caught up. Ohio, for example, requires the same (minimal) level of disclosure. Plus, the federal Corporate Transparency Act will reveal to the Treasury Department who owns what anyhow.
We have converted many businesses from Delaware to Ohio. To be fair, we have also converted Ohio corporations to Delaware for the reason that the business community still recognizes Delaware as the leader, and any company that may raise significant capital will allay any investor concerns by having a domicile in Delaware.
Contact Michael Rasor at 216-621-7860 for questions on corporate law.