A Message from RLF President Lisa Schmidt
February 26, 2025
Publication
February 25, 2025
Dear Distinguished Members of the Legislature,
Delaware is at an important crossroads, where we have the opportunity together to maintain our state’s reputation as the global leader in corporate law. You have played an essential role in representing Delaware citizens and protecting Delaware’s leading corporate franchise role, which we have all taken pride in—and enjoyed the benefits of—for more than a century. Passing Senate Bill 21 is a vital step to continuing that long, bipartisan tradition.
SB 21, sponsored by a bipartisan group of leaders in Delaware’s House and Senate, was proposed last week to amend the Delaware General Corporation Law. While the bill has been inaccurately and unfairly characterized by a few media members and others, at its core this legislation makes common-sense changes to balance Delaware corporate law. Put simply, the bill provides for a continuation of the clear rules and predictable outcomes that have led more than two-thirds of Fortune 500 companies to incorporate in Delaware and helped create significant revenue for the state.
Why now?
SB 21 is an overdue response to issues that have been brewing for several years. Those issues were highlighted as early as 2022 in an article penned by two prominent former members of Delaware’s judiciary and one of the nation’s leading corporate law academics.[1] Over the past few years, we have seen a concerning trend where Delaware law was applied in a way that created uncertainties in the approval process for some corporate transactions and uncertainties with the scope of corporate records a stockholder is entitled to receive. These uncertainties and the increased risk of corporate actions being subject to lengthy, expensive, and uncertain litigation have led Delaware corporations to consider and, in multiple instances, leave Delaware as their place of incorporation.
With additional reports that other corporations were departing or considering departing from Delaware, it became clear that a statutory fix, which could address systemic issues in a way common law judicial decisions cannot, was urgently needed. Delay would have meant more corporate departures and an immediate loss in revenue for the State of Delaware. With preparations underway right now for spring proxy season for public companies and many considering relocation, there is an urgent need for reform. Proposing SB 21 last week ensures that Delaware corporations have the information they need to make informed decisions and provides such companies and their stockholders with the necessary assurance that our state remains and will remain the national leader. This assurance will allow Delaware to maintain its reputation for balance and consistency.
Delaware law has long been guided by expert corporate law practitioners and scholars and by thoughtful elected officials like you who make policy and adopt laws that strike the appropriate balance between corporate actions and stockholder rights. Delaware has always supported and respected maximizing stockholder value, stockholder rights, and the good faith business judgments of directors and officers. Delaware has long recognized that stockholder litigation serves an important function, but that it cannot be deployed in a manner that paralyzes officers and directors from pursuing transactions that benefit all stockholders. That is what this legislation is about—bringing back the balance that corporations and their directors, officers, and stockholders have long come to expect from Delaware.
The local Delaware crisis.
But this isn’t just about corporate prestige—this is about the state we call home. If Delaware does not fix these issues, the impact will be felt by every person in our state—every single one of your constituents. The corporate franchise fees and associated revenues fund roughly one-third of our annual state budget, supporting our schools, infrastructure, and social services; creating jobs; serving as an engine of growth in our local economy.
The loss of direct and indirect revenue from the corporate franchise would be devastating to the state’s finances, risking the possibility of drastic cost-cutting measures that would hamstring the state’s ability to provide core services to all Delawareans as well as critical support to the most vulnerable among us. Delaware is our home too—and it has been for more than 125 years. Richards, Layton & Finger is the largest and one of the oldest law firms in Delaware and one of the most significant private employers in Wilmington. Like you, we have a vested interest in ensuring that Delaware remains the preeminent jurisdiction for incorporation. Our business is here, and we feel duty bound to fight to preserve the jobs of our more than 315 employees and to maintain a healthy, thriving community for our neighbors, friends, and fellow Delaware citizens.
Setting the record straight.
I want to take a moment to correct some of the factual errors and misleading statements from a limited number of misinformed media outlets regarding our firm’s role in the process. We were involved because of our history, our expertise, and our investment in our state’s success. At the request of our elected officials, our lawyers have played critical roles in drafting and amending many of the state’s business statutes, including the original Delaware General Corporation Law many decades ago. Here again, we were called upon to provide our perspectives on these issues fundamentally important to our state’s economy. Our elected officials invited one of our attorneys with extensive experience drafting corporate legislation to assist a group of highly respected former members of Delaware’s judiciary and prominent academics to help draft measured reforms that would provide additional clarity for directors, officers, and stockholders. I am proud that, as we have done throughout our firm’s history, when our lawyers were invited to assist those seeking to strengthen Delaware’s franchise, they welcomed the opportunity to volunteer their time and expertise.
Our assistance in this effort was not on behalf of or influenced by any client. It was based on our sincere desire to promote the interests of the state that we have called home for over 125 years. We have a responsibility to lead and provide our deep institutional knowledge of Delaware statutes and common law, ensuring continued confidence in the Delaware franchise, which is critical to the financial well-being of our state.
What does the legislation do?
Here is an overview of the two main proposed changes:
- Independent directors: The legislation provides greater clarity about the meaning of director independence and disinterestedness under Delaware law and empowers directors, as Delaware has historically done, as well as disinterested stockholder votes. The legislation also provides greater clarity for planning transactions and provides a safe harbor from liability for directors, officers, and controlling stockholders if the new statute’s requirements are met. The legislation for the first time provides statutory guidance on director independence, which is necessary.
- Books and records: The proposed change to stockholder rights to inspect books and records does not deprive stockholders of the information needed to address the proper purposes long recognized by Delaware law, such as valuing one’s shares or investigating wrongdoing. The legislation merely brings the scope of that back in line with historical expectations to provide access to evidence of formal corporate action.
In addition to SB 21, there is a resolution requesting that the Delaware Corporate Law Council make a proposal regarding plaintiff fee awards, a proposal that we trust the council will carefully consider and ultimately reflect a common-sense response to the frustration and outcry from companies, investors, and the general public at awards of tens, and even hundreds, of millions of dollars to a small number of lawyers. This is not about disincentivizing stockholder litigation. Further, the resolution is not part of SB 21.
You can read our client alert summarizing the proposed legislation here.
Closing and gratitude.
I want to again say how deeply grateful I am for the leadership that you have already, and repeatedly, shown in ensuring that Delaware remains the top jurisdiction for corporations and other entities—one that allows those managing corporations the flexibility to maximize their value while providing appropriate protections to their investors. These changes are critical to our state, and the bipartisan involvement in the drafting of this legislation is an example of how we work together as Delawareans for the good of everyone here. Collaboration has always been key to our success.
That is why I am personally proud of the support our attorneys provided to this process. Our attorneys will never shy away from doing what they believe to be in the best interests of Delaware and the development of our corporate law and our corporate franchise, even when doing so risks putting them in an unintended spotlight. That is what we were called to do for our state by our elected officials, and we will proudly answer the call in the future. If you have any questions or we can be of any support, please do not hesitate to reach out. I look forward to continuing the legacy of our great state together.
Sincerely,
Lisa Schmidt
President
[1] “Optimizing The World’s Leading Corporate Law: A 20-Year Retrospective,” by Lawrence Hamermesh, Jack B. Jacobs et al.