At the ABA Annual Meeting today in New York City a panel presentation addressed the ongoing competition between the SEC and the State of Delaware regarding who should take a more prominent role in the arena of corporate governance. The panel was moderated by Wilmington lawyer Rolin Bissell and included Delaware Supreme Court Chief Justice Myron T. Steele as well as Thomas Kim, Chief Counsel and Associate Director, Division of Corporate Finance of the SEC. Also on the panel were representatives from academia as well as the New York Bar and the D.C. Bar.
Mr. Kim is reported to be the person at the SEC who "got the ball rolling" to initate the process to use for the first time the procedure (based on a recent amendment to the Delaware Constitution) that allows the SEC to request a formal opinion by the Delaware Supreme Court on an issue of Delaware law. That procedure resulted in the very expedited landmark opinion by the Delaware Supreme Court last month in CA, Inc. v. AFSCME, summarized here. The Chief Justice referred to the opinion for controlling language but gave a few highlights of the decision, such as the manner in which it carefully strikes a balance between the rights of the shareholders and the duties of the directors as required by DGCL Sections 141 and 109. Put simply, the proposed bylaw in the CA, Inc. case was too broad because it restricted the ability of board members to exercise their fiduciary duties. Chief Justice Steele observed that it was noteworthy that the decision was unanimous, which was important for this first decision sought by the SEC under the new procedure.
Mr, Kim was effusive in his praise of the Delaware Supreme Court’s prompt and professional rendering of a scholarly opinion on an extremely expedited timetable, and he said that it provides an excellent precedent for the SEC to call upon Delaware’s High Court again in the future to address similar issues.
One panel member suggested that the hoary phrase ”race to the bottom" is now obsolete and that instead of the former so-called competition between the state and the federal government, the CA, Inc. case may mark the start of a metaphorical "walking hand in hand" instead of a race, as the SEC and Delaware, perhaps, are seen by some to be collaborating more closely.