Corporate Governance

The SEC and the State of Delaware: Larry Hamermesh Goes to Washington

By J. Robert Brown

We missed the note that Larry Hamermesh, Ruby R. Vale professor of corporate and business law and the director of the Institute of Delaware Corporate and Business Law at Widener, joined the Securities and Exchange Commission for two years as an attorney fellow in CorpFin.  He is an expert in corporate law, particularly Delaware corporate law. 

The addition to the Commission staff of someone with expertise in Delaware law is particularly timely.  The SEC has been delving more and more into issues that intersect with state law (see Essay: Corporate Governance, the Securities and Exchange Commission, and the Limits of Disclosure).  The SEC's access proposal is the best recent example, a delicate balancing act that preempts state law in some but not all circumstances.  Professor Hamermesh will unquestionably provide useful insight into how that should be accomplished.   

What the staff of the Commission must make clear, however, is that the expertise is only going to be used to ensure a more effective SEC rule that does not raise unintended concerns under state law.  It cannot be used because the Commission wants to engage in a deferential approach towards Delaware law.  An example of how the SEC did this was in its decision under the prior Chairman to certify a question to the Delaware Supreme Court on the validity of bylaws that require the company to sometimes repay the costs of an insurgent's proxy contest.  The Supreme Court took the issue in apparent violation of its own rules.  The result was a disasterous decision for shareholders that made it easier for companies to exclude some proxy proposals under Rule 14a-8.  It is authority that we recommended the Commission affirmatively disavow. 

As Professor Hamermesh mentioned in the press release from Widener announcing the appointment:  'This is a significant step not just for me, but for both the SEC and the State of Delaware in particular."  Hopefully the last clause simply refers to the benefit that will accrue to Delaware because of a rule that does not have unintended consequences under its law and not because Delaware (and those who are a proponent of the Delaware model of corporate governance) see this appointment as an avenue to excersise influence over SEC rulemaking and policies. 

Full post as published by The Race to the Bottom on February 17, 2010 (boomark / email).