Delaware Lawmakers Propose Amendments to Limit Shareholder Lawsuits
Delaware's legislature has introduced a bill to amend the state's corporate law, which governs companies in the S&P500 index. The amendments aim to limit shareholder lawsuits and protect directors and controlling shareholders from litigation over alleged conflicts.
The bill specifies steps that corporate boards can take to mitigate liability, such as establishing special committees and obtaining independent legal opinions. It also restricts access to internal records by shareholders, which are essential for building legal cases.
The proposed changes were prompted by high-profile companies expressing intent to relocate their legal homes. Meta Platforms, Dropbox, and Bill Ackman's management company have cited Delaware's perceived bias towards shareholder lawsuits as a factor in their decisions.
Delaware's corporate law has traditionally been viewed as favorable to companies due to its stable legal framework and respected courts. However, recent rulings have raised concerns about the state becoming too supportive of shareholder lawyers.
The bill's sponsors argue that it will make shareholder litigation in Delaware less successful. Critics contend that such lawsuits serve as deterrents against boardroom abuses.
The amendments also propose a report on the awarding of attorney's fees in corporate cases. Delaware courts have recently awarded substantial fees, fueling criticism of the state's judiciary.
The bill is expected to move swiftly through the legislature. It has been drafted with input from Governor Matt Meyer and is not retroactive.