A recent Delaware Court of Chancery opinion decided a contested mootness fee request in connection with benefits that resulted from stockholder litigation. Instead of the thorough analysis concerning the appropriate amount of the fee award, what one reader thinks is more interesting about the decision, from a historical perspective, is the introduction which defines the word “wedge” as a term with meaning in corporate governance–as well as a term that relates to a part of the boundary of the State of Delaware with its neighboring states.
The first page of the Court’s Memorandum Opinion, in Hollywood Firefighters Pension Fund v. Malone, C.A. No. 2020-0880-SG (Del. Ch. Nov 9, 2021), deserves to be quoted in its entirety:
To historically-minded Delawareans, the Wedge brings to mind a political
delta of land at the state’s northwestern corner. Delaware’s western boundary is the
Transpeninsular line, separating the state from Maryland. Its northern boundary
with Pennsylvania, uniquely, is formed by an arc with a radius of twelve miles—the
Twelve Mile Circle line—measured (originally at least) from the cupola of the Court
House in New Castle. The line separating Maryland and Pennsylvania, of course, is
the Mason-Dixon line. If these three lines were intended to meet at a point, that
intention was frustrated. The tangent of the Twelve Mile Circle missed the
intersection of Mason-Dixon and Transpeninsular lines, passing to its east, and
intersecting the Transpeninsular to the south. The rough square-mile triangle
resulting was the subject of a boundary dispute between Pennsylvania and Delaware
not settled until the 1920s.
Corporate finance academics have another delta in mind when they speak of
“the Wedge.” That delta represents the difference between the percentage of
corporate ownership held by a stockholder, and the percentage of voting power
represented by her stock; that differential results where various classes of stock have
distinct voting rights. Where voting power is concentrated in stockholders owning
a minority of corporate equity, misalignments of interest arise, and the greater such
disparity (the larger the Wedge, in other words) the more the misalignment decreases
the value of the company, theoretically at least.