The CA decision: it's not about principle

As I said yesterday, the Delaware Supreme Court “was careful to present itself as a pragmatic forum that would hear the shareholders out on a case by case basis.” This is important: the SEC gave Delaware an unprecedented chance to participate in the shareholder access debate, and the Court was determined not to blow it. It seized the opportunity by, in effect, emphasizing that it wasn't the defender of some general principle of director vs. shareholder power that the court will uphold whenever it’s asked. It’s about this particular contract, as set forth in the certificate, and how it applies to the particular issue of proxy expenses. Change the contract or the issue and you might get a different result.

The court therefore has done what it can to anticipate the point that AFSCME’s Richard Ferlauto made to the WSJ, that “the decision makes Delaware less relevant to the discussions about shareholder election rights” and that "the focus for shareholders has to be on the Securities and Exchange Commission and the creation of an appropriate right of shareholder access at the federal level." By emphasizing the nuances of the contract, on which the Delaware courts are clearly the experts, Delaware has done what it can to promote the viability of the certification procedure.

This relates to Professor Bainbridge’s lament, “We are not cited. We are depressed.” Indeed, if anybody deserves to be cited on the issues in this case it is Professor Bainbridge. But the court studiously avoided citing any academic except (in fn 8) to establish the unclarity in the law that the court had to unravel. This is part of the court’s avoiding taking a policy position that could be interpreted as inhospitable to insurgent rights, leaving it to the SEC to defend these rights.

It follows that the Professor is wrong “to see a strong affirmation of the principle of director primacy.” The court is saying as clearly as it can, there is no principle, just the rule that happens to be expressed in the current version of DGCL Section 141(a).  That is not necessarily to say that there is in fact no principle of director primacy that underlies Delaware decision-making, just that the court was doing what it could to keep it out of this case.