Last week the North Dakota Legislature adopted the North Dakota Publicly Traded Corporations Act.  To quote the Act’s sponsor, the North Dakota Corporate Governance Council, the Act “provides a governance structure for publicly traded corporations that gives shareholders greater rights than they currently have under other state laws.  It has been designed to reflect the best thinking of institutional investors and governance experts and addresses each of the current hot topics in corporate governance.”  A director of the Council, and the law’s drafter, is William H. Clark, Jr., from Delaware’s neighbor, Pennsylvania.

In brief, the law permits firms incorporated under North Dakota law after July 1, 2007 to elect to include a provision in their articles that they elect to be subject to the new statute.  Shareholders then get a set of provisions that looks like a shareholder rights advocate’s wish list, including majority voting for directors, advisory shareholder votes on executive compensation committee reports, a right for certain shareholders to propose board nominees on the company’s proxy statement; reimbursement of proxy expenses to shareholders to the extent they are successful in getting nominees elected; a requirement of a non-executive board chair; and restrictions on poison pills and other takeover devices.  The Economist recently applauded the Flickertail State‘s plan “to poach company incorporations from Delaware” as “injecting some much-needed competition into the field of corporate law and governance.” 

As a longtime champion of state corporate competition, I suppose I should be happy to see this development.  Isn’t it an example of what Roberta Romano has called The Genius of American Corporate Law? Isn’t it, after all, an answer to those who say that we need to federalize corporate law to get reform?  Doesn’t it provide a natural experiment to see whether corporations really want the reforms that have been proposed?  Well, sort of.

(more…)