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A Litigation Plan That Would Favor Delaware

Publication Date: 
October 26, 2010
Source: 
The New York Times - DealBook
Author: 
Steven M. Davidoff

Professor and senior faculty member of the Rock Center for Corporate Governance Joseph A. Grundfest is featured in the New York Times for his suggestion to include provisions about shareholder litigation in public corporation charters. Steven M. Davidoff filed this story:

Prof. Joseph A. Grundfest has a clever idea.

Mr. Grundfest is a Stanford Law School professor, a former commissioner of the Securities and Exchange Commission and a member of the Rock Center for Corporate Governance. He recently delivered the Pileggi lecture in Wilmington, Del., to the Delaware corporate law bar, where he put forth his idea: Public corporations can and should adopt charter provisions to select in advance the forum where shareholder litigation would occur.

If adopted, public corporations would put in place a bylaw or charter provision to provide that all shareholder litigation must take place in the state of incorporation (e.g., Delaware). The provision would be phrased in one of two ways: as a requirement that all shareholder litigation would occur in the jurisdiction of incorporation or as an option for the corporation to elect that all shareholder litigation would occur in the state of incorporation.

...

Provisions of this type have been around since at least 1991, but until this year only 16 companies had adopted a form of them. Professor Grundfest was involved in implementing a wave of these in 2006 with Netsuite, Oracle and Netlist. He was a director of Oracle and is now a director of Kohlberg Kravis Roberts and Financial Engines. Both of these companies have also adopted similar provisions in their organizational documents prior to going public.

...

Since that time, Professor Grundfest finds that 23 companies have adopted provisions of this nature. The most prominent among them is Chevron, which adopted a provision in its bylaws providing for all shareholder litigation to occur in Delaware unless the company otherwise elected to go elsewhere.