Welcome to North Dakota!
Delaware has long been home to a wide range of corporations, and according to the state’s own site, over 60% of the Fortune 500 are incorporated in the state, even though the vast majority are technically based somewhere else.
But this year, Delaware is getting some competition from a seemingly unlikely place: North Dakota, which enacted what is widely considered to be a shareholder friendly law in 2007, called the North Dakota Publicly Traded Corporations Act. According to this article in the WSJ back in December, the new law makes it easier for shareholders to nominate their own slate of board members and vote on things like executive pay.
When that WSJ article appeared, just four companies were being targeted. But a quick skim of the current crop of proxies shows that it’s now up to 11. Just this past Friday, shareholders at Southwest Airlines (LUV) proposed reincorporating that company in North Dakota to take advantage of the new rules, according to Southwest’s proxy. Other companies being targeted include Exxon Mobil (XOM), Lowes (LOW), and Marsh & McLennan (MMC), Amgen (AMGN), Sempra Energy (SRE) and footnoted regular, Qwest Communications (Q). That’s in addition to the ones cited in the WSJ article: Oshkosh Corp. (OSK), Hain Celestial (HAIN), Whole Foods (WFMI), and PG&E (PCG). Longtime shareholder activist John Chevedden has either introduced the proposals directly, as he did at Southwest and two other companies, or is involved with other groups that have introduced the proposals at the companies this proxy season.
Most of the management responses to reincorporating in North Dakota run along the lines of Southwest’s response:
The Board of Directors believes reincorporation to North Dakota is not in the best interests of the Company, its Employees, or its Shareholders. The Company has been incorporated in Texas since its inception in 1967, has located its headquarters in Texas, has based a significant percentage of its Employees in Texas, and has developed significant business and other relationships in Texas. In addition, the Company has a well-developed understanding of the laws of Texas. On the other hand, the Company has no business connection to North Dakota, nor is North Dakota a well-known jurisdiction for business corporations. Furthermore, the Proponent is requesting that the Company subject itself to the provisions of the North Dakota Publicly Traded Corporations Act, which has been in effect only since 2007. Neither the Company nor its Shareholders can therefore predict the impact on the Company of being subjected to this relatively untested set of laws.
How many more companies will be asked to pick up stakes — figuratively at least, since few have other than a post-office box in Delaware — remains to be seen this proxy season. But my guess is that several more will, though few of these resolutions will pass. There’s also the not insignificant matter that just because a resolution wins a majority of shareholder votes, the company isn’t required to do anything. Still, it remains interesting to watch whether Delaware is in any danger of losing its corporate crown.