Relationship of federal and state corporation law

Welcome to shareholder Primacy from free float media podcast about activist investing security slaw and all the way is the financial illegal world's intersect and Collide in real life Haiyan. Hope you're doing well, we're back and in me, and Lipton is a lot professor at the University of Colorado, who teaches in researchers Securities and business law, she holds up the legal end of the podcast, and that's Mike Levine an activist investor who lives and works in Chicago. He covers the financial side of our podcast. Our podcast. It's my turn again to remind everyone that if you want to contact us with comments or questions or requests for topics, you can reach us at our email address shareholder. Primacy at freefloat. One word, dot LLC. Excellent. So Anne, I have this is great because I have all these questions that I've been sort of saving up that I wanted to run past a really smart lawyer. So that's so that's you. So, that's you. So a couple weeks ago and another one, I've been kind of saving up was motivated by our talked a couple weeks ago about the speech that SEC chair. Paul Atkins had delivered to all those leaders in Delaware kind of I don't know, encouraging threatening threatening, threatening them about two subjects, shareholder Preparatory proposals, and mandatory arbitration of disputes lawsuits security. We talked about this. Yeah, yes, we've talked about this, many ways before context of companies, kind of trying to leave Delaware going to Texas or Nevada. We looked at different cases and lawsuits in federal and state courts. But this leads to a question that I've been pondering. And wanted to ask you for a while its formerly related to Securities laws and their relationship and conflicts at the federal and state level. And the heading that I thought of which I think you wanted to refine. Yeah, change refined. I just thought about it in terms of federal preemption. Of State Corporation law. So I was kind of wondering as all this stuff unfolded. Both, you know, Atkins speech, but also earlier stuff like when Delaware passed SB 21 and when Delaware passed, I can't remember the law of the year before for free for shoulder. Yeah. Right. Yes I kept wondering. Is there going to be an opportunity for the federal government to just kind of Step In? And the verb, the verb. I thought it was to preempt. Yeah, no, that is what preemption would mean? But it's just. Yeah. But there's a lot more to it, than that, more to it than federal prison. Yes. Exactly. And you sent me straight and you said, let's talk about the more and then we can talk about preemption. Is that is that roughly correct? Exactly right. Good. So we thought we'd be interested in fun to talk about the nature of that. What it would look like. And you know, just also speculate a little bit about How likely Various forms that might sort of be coming coming years. So that's that's what I had in mind and you were, so kindly said, yes we can talk about that. so, There are some go ahead? Yeah. Yeah. I mean, yeah, I don't. Principles we need to talk about, I think yeah. So we can talk about where this takes us, right? I mean like, we should start with a foundation, so go ahead. Yeah. So like the ultimate Foundation here is that the constitution says, the US Constitution says, yes, that one. That's the one that we worry about with increasing frequency these days. Well, it It's that Congress has the power to regulate interstate commerce. And that's among all these states started with the 13 of them and now we got 50. Exactly. Congress is the power to regulate interstate commerce, and that powers been read very broadly. So once upon a time, it would, it was viewed, very narrowly. So an entirely entrust State business. Like, a mining company was something like beyond the power of congress to regulate. But over time, it's been read. Pretty broadly on the theory that everything economic effects, everything else. So probably for the most part, Congress has the power to regulate a lot of most business activity and probably most, if not all corporate governance in fact. And, and this is why I ever since the early theoretical power, they theoretically have the power. Okay, go ahead. Yeah. And so, ever since the early 1900s, there have been proposals for Congress to essentially create a federal Corporation law. That would, it wouldn't be this thing where you choose Delaware or Texas or Nevada, which just be you incorporate under federal law and federal law would dictate The rules. And the preemption principle is simply if Congress passes a law on a subject, the conflicts with a state law and the subject congress's law controls, that's pretty. And that's, that's has that goes well Beyond business, too Echoes. I mean, there's like that's law. Yeah, that's okay. There are all kinds of questions about, what does it mean to conflict and all that? But that's the basic principle. Yeah, the supremacy clause that if there's a conflict Congress wins but even though Congress theoretically, is the power to regulate most corporate governance, it actually has chosen not to exercise that power, its left a lot of it intact and that's why we have sort of a mixed system today. Mixed in the sense that there's some regulation and some law at the federal level. But a lot of it, which we'll talk about in a minute. Yeah. At the state level. Exactly. Okay. Cool. Let's let's Dig into that a little further then I know right? Well, I mean it's state. So for the most part other than a few Little entities like certain kinds of banks. State law is where you Charter, like you pick a stage and you incorporate in that state, that state sort of declares, you are a corporation on our state in our state and that state defines certain Basic Ground rules, like what has to be in the charter, the powers of the board and the shareholders, what can be considered at shareholder meetings, what the equity structure looks like most, everything else and state law tends to operate in two ways. First there are like sort of statutory rules. Your Charter must contain these items. It may contain these other items. This is the procedure by which you merge, you know, these statutory rules. But then on top of that as we talk about a lot here, the board has fiduciary obligations and stuff. Controling stockholders, have fiduciary obligations. These fiduciary obligations of care and loyalty. A um, that goes beyond what the statutes are like the minimal sort of powers and requirements of the statute. That essentially dictates how boards and officers and so forth are supposed to exercise their discretion within the powers conferred by the statute. And those fiduciary obligations are very contextual they're like what is demanded of loyalty or care? May depend on any particular specifics of any of us scenario. So I have a couple quick questions. Yeah. So or just to confirm so My understanding is those fiduciary duties. Like there's really two basic ones like that are kind of thought about, but they all kind of exactly track back to law and Care. Those are mostly in cases and not in sketch, right? Exactly. Like the exactly. So like the, those are it's all developed through case law. Right. All right, cool. So if you want to learn about those, you have to read the cases. The nature of some fiduciary duty that somebody says, I have a duty to, like run advanced, notice bylaw terms, which I want to ask you about and all that, all that's in case law. Now I have to go read a bunch of cases to understand. There's no statute, I can there's no, there's no number to go find. Yeah, I mean you might see some sort of Basic cut like the phrase, loyalty may very well appear in the statute. Certainly appears also in the NBC, the model business Corporation act which loves states have adopted. But like what it means, what it requires at any given moment, it's almost entirely going to be a case law. It's a judge is developed that except to the extent that sb21 this recent Delaware statute like it's complicated, what it requires is developed by case law but there's this idea of cleansing where You know, action, that might otherwise be deemed disloyal can be cleansed by shareholder, Vote or board action, and that was entirely common law in Delaware until SB 21. They started writing some watch some statutory law. Exactly. And other states might have a stash Story So Far. So before we talk about the federal end of this, it's worth noting. And I think we're going to hit this up a little later is of there's 50 such states that all have different Corporation laws. Yeah. But a lot of Delaware of course is the biggie. Yeah but they are a lot of the same because the a lot of them will have adopted the model business Corporation Act, Right variation of it. Or if in a lot of them also kind of referred to or follow Delaware. Yeah, I saw what I tell my students is outside of Delaware. You either going to follow Delaware or explain why you're not? You know, like those are your options. Okay, so that's your, that's your choice. Yeah. All right, cool. So that's, that's this, this kind of foundation, this in terms of the question, I was starting to ask what we just described would be, what is about, what may get preempted? Well, but we'll get that. Okay, great. So and the preempt door would be, I suppose Federal of some sort of it would have to be. So what is that? I mean, yeah, but I'm not sure. I mean, it's complicated. So yeah, so when We federal law. I mean. Corporate law and feds. We're talking about the security circulation. The security. Yeah. And the usual thing to say is that these acts deal with disclosure, they require disclosure to investors, but I would also say that increasingly aspects of federal law intrude on what we call corporate governance. Yes. Like so even like going, like, so the ordinary thing you say is its disclosure, but it's not really. So, like, when we talk when we're talking about public companies. So for example, federal law, extensively, regulates shareholder voting and not just disclosure requirements for shareholder voting. They have rules about bundling different items together, like you can't. Like, so that shareholders get to vote on individual specific items. That's a substantive rule about how the vote have to be taken. There are normally would based, when we talk about, normally you'd find that in at the state level based on what you don't right. But there aren't as far as I know, I'm unaware of any specific state level rule that says, you can't like that has anything about structuring votes so that you have to vote like in bundles or bundling meaning. Sure. Like here, these two items you vote for them both together are neither, but you can't go one. Or the other, like not the other. Like I'm unaware of any state rules on that, that's purely Federal. Now, part of the reason it's purely Federal, I think is because it's been Federal since like 1934, So, like some of the reasons that the federal like there isn't state law and some of the spaces, almost certainly because the federal government has been regulating for so long. There was just no chance for states to stay stages. If I were gonna bother you. Exactly. So, um, so so there are so the federal proxy rules the tender offers. There's lots of regulation of tender offers, and again, not just disclosure obligations but also rules like you have to hold the tender offer for 20 days or you know, you have to make it possible for you have to accept over subscriptions on a program, a basis. So so once again I call that corporate governance but it's under the but it's a federal law, it's regulated by a federal law. Yeah. And it's by the agency that that federal law. Empowers. Exactly. And usually, this is for public for public, like federal law operates tends to when it does governance. Rules it tends to operate on either publicly traded companies or only listed companies. So there are a lot of places where federal law. Adds some basic minimal requirements for Corporate governance and listed companies. Like the stock exchanges are required by Statute to set certain rules, for independent boards, independent committees audit committees have to have certain powers. They have to have procedures like taking whistleblower complaints. They have to interactive, how they, how they're Auditors. Independent. There's exactly they have to and compensation committees have to be independent and shareholders. Get non-binding votes on executive compensation that's Federal say on pay corporations are allowed to make loans to Executive officers. So all of this is Corporate governance regulation but it's Federal it's not based on the law of the state of incorporation. Right? And yeah go ahead. No and one thing we've talked about this before a while ago is that some federal disclosure requirements and like I'm making air quotes disclosure requirements are good. Yeah they're not really disclosure requirements. They're like a back door to substantive regulation I like to use the cybersecurity Else is an example boards. Have to make detailed disclosures of how they're managing cybersecurity risk and you can call that a disclosure requirement. But and board could say, well we're actually not managing cyber security, right? Forget it. We're like we're neglecting it completely. No board is going to do that. So by requiring disclosure of detailed stuff about how the board is managing cybersecurity risk. You are functionally requiring boards to care about to have some, some policy and some procedure around Cypress Security. Exactly. So, there are ways that the federal disclosure requirements are essentially something like a duty, a federal duty of care and like books and Records like corporations have to maintain books, appropriate, internal books and Records. Now, it's time to disclosure because you can't accurately disclose, if you don't have accurate books and Records but what it really required books and Records directly. What you're required is proper care, be taken within the corporation and then sure the final thing I'd say on. This is probably way further than you wanted to go. All right, this is good. This is great. We're laying a groundwork for answering my question. So outside of what we think of as corporate law, when we get to other areas like Financial regulation or environmental regulation or health regulation, there are a lot of requirements that firms set up governance structures, they have to have a compliance officer. They have to use certain procedures when taking action, they have to document those procedures. And that's starts to look like corporate governance regulation, in the sense that it's regulating the procedures within the corporation that it has to follow to comply with, you know, duties under health law or environmental law. Sean Griffiths at Fordham is when I have to the Shadow or to gray paper on how this is this, all this compliance regulation is really regulation of corporate governance at the federal government is carbon Behavior, right? So, all right, so, the next logical question is that kind of the You know, grayish boundaries between federal and state and kind of the areas they work. And I've said before that, in my mind, which is only partially correct. The federal government tended to regulate, communication between shareholders and between the company and its shareholders. Yes and States kind of regulated most everything else, but that seems to have been kind of gotten kind of leaky Actually, exactly. It's it's it's, it's it's much more complex process. And Delaware, you know, there have been multiple warnings to Delaware that like If you don't regulate things, like, if we think, we, if independent boards are important and Delaware doesn't require board Independence and it never does it just requires, you know, like it's helpful to have independent board members because they can cleanse complex, but there's something in Delaware law that requires independent board members. So, you know, the, the continuing ongoing issue for Delaware is that if it doesn't regulate something, then the feds May step up and regularly step in, right? And now it's a Delaware's hands. Right? And that's, that's what we're gonna, hopefully, hit up briefly shortly. So, now that we got, this whole Corpus, is that right? I like that word Corpus of law. So the overseers at the state level is the state in which you decide to incorporate, which is mostly it's the state of incorporation. That's what controls except I think we've mentioned this on an earlier. So that Texas seems to be trying to challenge that because it's trying to regulate corporate governance for companies that are headquartered in Texas or that trade on the Texas Stock Exchange. Even if they're not Incorporated in Texas, it's done this with a few different things. So we'll see if there's a fight about this but traditionally the state of Incorporation. Right. And then at the federal level, the principal way. This stuff gets enforced is, are basically the, our old friend, the SEC, the SEC, if it's willful, of visions of the lot. It can be criminal. And that would be the justice department when they Tend to I don't know if they collaborate but they kind of know what each other. Yeah. And so usually the SEC sort of like if they have often, they'll pursue the same case like an insider trading case. So the SEC will step back wait for the criminal prosecution, and then they'll step up. So that would, but that's really bad as you say criminal stuff and then there's a role for the exchanges. Right? Well yeah, the exchange is operated under SEC oversight and a lot of what they do Congress is mandated. So Congress is like the reason the exchange is require independent have all these Independents requirements is because Congress required that the exchange is adopt Independence requirements. So that's a way for the SEC to kind of delegate. Some of its yeah, exactly sort of a complex little system, okay. Well, at the exchanges do this, right? Rather than our doing it ourselves? Well I mean the exchange is supposed to kind of be self-regulating but they do operate under the sec's. I and I've always had, you know, and the SEC sometimes you know can encourage that certain action we take But the SEC I mean, it's really important is that the SEC can only exercise powers that are authorized by Congress. So if Congress says a statute that prohibits fraud, the SEC can administer that statute but it can't turn the statute into a negligence statute. Like they're a limit like Congress is given the SEC a fairly free hand, but at the end of the day, the SEC can't go further than the outer limits of congress's authorized to do. And that's going to become important. I think really just based on your saying it very important. All right, so that's who does Watts. And how do they then handle? The inevitable disputes that come like between a shower and a company or between Cheryl. There's something like that at the state level. My sense is that people just saw each other, right? So yes, so it's state law. All of the Cricut governance standards of state law are almost entirely enforced by private actions disputes among the players may be, you know, essentially shareholders and corporate managers directors officers and so forth. So one, you know, somebody sues somebody else within the corporate form and the state enforces, the requirements, it's the only the requirements of its law. The only time you have like, Governor mental, Getting involved like government mental and like the State Attorney General, perhaps getting involved. And this is, yeah, Hannibal space. There's so there's this very old timey, concept known as quo orbito. Whoa, warranto. It's two words quo warranto and this is actually lawyers Latin, right? Yeah, it feels that the problem of a corporation that literally exceeds the scope of its authorized power. It's like there are certain like they're used like if you just think back to a time when a corporation was not allowed to hold stock in another corporation that was literally forbidden. So it would be quote warranto, if they tried to do that. Today, of course, there are very few actions that go beyond the corporation's, authorized power, but theoretically, the state attorney generals can step in to actually require the corporation, stick to their authorized power. And today, the sort of main use of this is Dissolving corporations that are used to break the law. On the idea that we are only chartering you, you only get to exist. For legal compliance. Now, obviously corporations break the law all the time, without getting their Charters dissolved. It's the idea being that you're functioning essentially for the purpose of breaking the law, but you are only chartered to do lawful things. So every, you know, every few years the, you know, the or maybe the Attorney General of Delaware, for example, is, you know, constantly announcing that she's dissolving the charters of various, you know, Enterprise organizations Delaware that really bad for engaging criminal activity, some of these were organized by Trump actually a few years ago, that was funny. Oh interesting. It was a whole like campaign contribution and funnily thing. Anyway, um, yeah. So that so that's at the state level people saw each other. We go to jail. That's one little you know, roll. It's almost entirely people suing each other. Private. Yes, it's different. But yes, a whole regular hole enforcement division. Exactly. So the SEC actions, get a lot of Headlines. But the fact is that the that the enforcement powers of shareholders, as shareholders like individual private actors are very, very limited. They have only a very few causes of action. The vast majority of the rules that Congress in the SEC laid down are only enforceable by the SEC. So the SEC can bring a lawsuit but it has it has invest various kinds of investigatory Powers over. You know, visit exercise, its oversight of brokerages and so it does examinations and so forth, right? Yeah. And it has in-house agency courts, but they're used less and less because there have been constitutional challenges to them. Oh, interesting. So this is actually enforce their own rules as well. Yeah, right. They threatened to do list you. Yeah. Which we've talked about like you know, with Tesla and so forth. They, you know, they okay, so in this actually gets to an interesting point that I've kind of thought about sometimes, which is I always wonder and the SEC because of their regulatory approach to this that they kind of, you know, SEC issues. You know, they know action relief, we've talked about that and shareholder proposals, I've always said the Delaware Chancery should have a no action process. Where if you have some sort of problem, like, with an advanced notice bylaw or something, you should be able to just go to some sort of magistrate. They actually do have a procedure and see, I didn't know you're going to look it up in a researched it. Now, I can't research on the flight but they don't have a procedure. Actually, a lot of states have a procedure where you can certify questions to the court and it can choose to decide them like is this, okay? But I know that the Delaware Supreme Court will take certified questions from the SEC. Oh, and that's what we talked about with with Atkins. Exactly, but I don't know the extent to which the procedure is available for private parties. Oh, so there's there may be a little glimmer of hope for that. I said I don't know if that's available for definitely available for the SEC and for courts. All right, so let's let's cover one of the little subject and we'll take a quick break. So, the we've talked about the law, how they very, very sit and we talked about who's responsible for which, you know, state courts versus the SEC and how they enforce. So what's let's set up our next Set of questions. How are these parties kind of related to each other? Kind of over the years? There's been a relationship that's evolved exactly. Well, it used to be that almost everything was Stay corporate law. And there were no Securities laws. I mean, the Securities laws didn't exist until 3. Yeah, until 1933 and even. Yeah, it's an even after the Security's lost passed in 33 and 34, they were much much thinner than they are today, and covered a lot less of governance issues than they do today. The Takeover and proxy stuff. A lot of that wasn't added until the 60s. But what tends to happen is that Congress is very reactive. Like there's a scandal and then suddenly there's new federal corporate governance. So the big ones were Enron, Worldcom Global Crossing in 2001 after which Congress passed. A lot of laws requiring died, Frank came along, and then well that was after the first place. So, a lot of these governance rules come up in response to a major crisis when Congress Responds by creating essentially Federal corporate law. Oh okay. So so there has been this kind of I'm not going to say preemption because we're going to exactly. Yeah. Because but but there's been sort of this expansion where maybe as business evolved. Um, and there was this kind of white space. That the essays or that the federal at the federal that was expanded at the federal level, where the SEC kind of got this mandate from Congress to, you know, further look at different kinds of disclosures or something like that. Yeah, exactly. Yes. So a lot of these things happened and so the reason I'm uncomfortable with saying that's just preemption, I mean, it does It states couldn't contradict it but their Congress is often in these cases acting in a space where the states have an acted. So it's not like, it's actually It. So it's more like, in the, in the negative. So like Delaware doesn't have any requirements, for independence of board members, you can have independent board members and if you do, that's probably good in the event of disputes later, but you're not required to have them. So, but then Congress absent and it says, actually, you are required to have them if you're exchange traded and call. It's not. I mean, it's sort of displays his Delaware in the subject, but it's not exactly. Preemption and all. So the federal definition of what counts as independent may be very well be different from Delaware. So it's actually sort of a mush. They're both regulated in the space simultaneously. Okay, mush. That's that's let's let's let's leave that there just for the moment because we can get to some more current questions. And so forth. So let's let's come back in a minute to talk about the more recent like in the past weeks and months efforts of the SEC to kind of influence and maybe. Okay, maybe not preempt, but influence state, law as illustrated by what we heard from SEC. Check chair Atkins here at shareholder Primacy. Cheryl Primacy is brought to you by free float, analytics.com. The only free database of corporate directors their influence and their performance. If you own a Stocker, retirement plan go to freefloat, analytics.com. And look up which of your elected directors are performing well and which aren't use your vote in the alternative democracy and get your data at free. Float analytics.com. Now, back to the show, The Primacy. I'm an here with Mike Levin. And we're continuing to look at the relationship between Federal and State corporate governance regulation and law on regulation and we'll figure out why preemption is not exactly right by it, but it's not far off, how's that? So okay, so there's some more now that we kind of laid this Foundation about who does what and what they and somewhere where it came from. We can now talk about some of these current questions. So In this context, what's going on? What's happening at the SEC like today? Yes, and chair, Atkinsons, and so forth. Kind of in this context we talked about a briefly when we were commenting about his speech but let's let's let's let's really try to delve into that. Okay, this is where we get to this. Issue aggressive about SEC rulemaking and repealing rules and so forth. Although with the government shutdown we don't know. That's just a temporary setback. Oh but what the issue for is that Atkins obviously has some views about what Additional corporate governance rules he'd like to see in the world but the SEC can't put them into place because not because Congress doesn't have the power to do it. It probably does but because it has an exercise that power like remember the SEC can only act within its authorized congressional powers and if Congress hasn't taken action, then the SEC can't actually regulate in that space. So what Atkins appears to be doing as looking around and saying, well, we might be at the limits of what the SEC can do, but he still wants to see certain corporate governance rules. So he's going to Delaware and basically saying, I think you should adopt these corporate governance rules, right. Even though normally the theory is a congress, hasn't given the SEC that power. Then it's not clear to me, why Atkins, has any right to demand anything of Delaware, right? Well and again, just to be clear and we didn't talk about this first. Segment, but well. His particular program seems to have to do with at least at the state level with litigation with, you know. Right. This is a classic lawsuit. Yes. So this is the, this is the class. This is a and this is been a concern for decades. It's been a conservative decades, but I just want to lay out with this framework here is so I mean we had we had a whole show on mandatory arbitration but like so first of all, we're talking about security claims talking about Federal Securities clients, the issue here is that like so it goes back and forth. Would you like arbitration or not? It's not about arbitration. First of all, it's about the fact that arbitration you can require it that actions be brought individually and therefore kill the class action. And if investors have lost, 1000 dollars, 2000 dollars not worth bringing an individual arbitration. So you've killed the claims entirely that's the point. It's A creation part. It's the killing the class action part. But here's the thing about arbitration. Everybody has the right to go to court. It's in the Constitution Among Us constitutional principle. You have the right to go to court. So if you're going to be forced into arbitration, when you don't want to be there involuntarily, it's got to be because you contracted, you've signed a contract. That said, I agreed arbitration, you know, waived your court or waive, my right to go to court. And when we're talking, especially about open market trading shareholders, buying and selling shares, there's there's no contract there. Like there's no contract between the shareholder, buying the shares and the people that might be suing, there's like a certificate of incorporation. And certainly, like, when you buy your shirt, like there's no contract in which to put an arbitration. Yes, and so that's the SEC like, so depend like, if that's Atkinson's problem. That's been the problem of any Securities person who kind of wanted to see mandatory arbitration. That there is not an obvious contract to put arbitration. Now, Congress might be able to regulate on this subject. But right now, like create, you know, a fictional contract of some kind, but it hasn't so that means the SEC is sort of at a loss. Like, there's no contract to put the arbitration Clause to force someone to arbitrate, but until the bright idea, came along that hey, maybe we can change state law Charters and bylaws as the contract that requires arbitration. Now again, I don't, I have long said, I don't think that's a correct reading of what Charters and bylaws do when we're talking about Federal Securities fraud claims that you bought on the open market and you claim I was defrauded into buying The contract of corporate governance. I don't think should be viewed as the contract that dictates the sale. But the point is that the only caught the only plausible contract in which, you can put the arbitration Clause is the charter and bylaws and Charters and bylaws are not controlled by federal law. They are controlled by state law. So, as we talked about first half. Yes. So Atkins is kind of like at the limit of what the SEC can do. So he's now trying to like get but he wants mandatory opportunity for Securities claims so he's trying to get Delaware to do it for in the state. Do it for him because he's the limit at the SEC is Powers. Maybe not congressional powers but Congress has an acted and probably the reason in this this gets us this gets to us to an interesting place which is kind of where I was wondering. When I first wanted to talk about that dreaded word preemption, which is is there some sort of Rule or regulation and we followed the SEC rulemaking. I have you have, we talked about it with universal proxy, there's all sorts of places where the SEC makes lots of rules, and there's a whole process and so forth. And part of what I was wondering is Is there some set of rules that the SEC could pursue? That would achieve someone's goals and I think the answer is starting to get to be. No, no not for mandatory petition security class. I mean, I work for many other for many of the other aspects. I mean, that's exactly the problem. So like any other aspects of corporate governance or exactly there are limits to how far he can go with us. He rules. So just really obviously I mean you know who knows what a Court decides later. I you know I have to see the right, but that's the problem. So like for example a great example from the Biden era was the SEC came up with rules to govern private fund Investments. They basically thought that private fund investors like, you know, it is like their Pension funds whatever, we're not necessarily being well treated by essentially, private Equity firms and they were concerned about things like side agreements, where some investors got favorable terms as compared to other things like that. And so they promulgated a set of substantive rules. To dictate how private funds had to operate. And the fifth circuit struck those rules down saying that they were not authorized by Statute the SEC had exceeded its powers in regulation and that so there are limits how far the SEC can go. If Congress doesn't act and of course we all know what the problems are that was that and that was my next question, which is that The SEC rights rules pursuant to laws. They're so interesting stories that Congress, right? And so so there could be some Instances or some areas where the federal government would start to preempt, or want to try to preempt state law or but, but and it would take acts of Congress. What Congress isn't in session, right? Yeah. And so like, for example, Delaware already changed its law but back when Delaware struck Elon musk's pay package, there must was sort of essentially hinting and threatening that he would use his political influence to get Congress to preempt Delaware. Corporate law. Yes, almost certainly has the power to do. Congress could do that, but he will now. Delaware already changed his law, you don't need to although, but but but that was something that was it was I don't know if it was seriously on the table, I don't know the muscles that much influence, and there's a filibuster and so forth, but that's the kind of thing. Congress could do. If it felt that the states were going too far in police saying corporate Behavior right now, they tended to go sort of the opposite route when they think Delaware is too Lacks. They you can call a preemption but you know, it creates these other rules for, you know, exchange listed companies, things like that. All right. So so That's the path. If some Enterprise, in energetic person at the federal level could be Atkins, could be someone at the White House. Well, they would have very likely take acts of Congress. To start doing this. Yeah. And but yes, that happening is not high. Yeah. But and it's just that happened is not high. And what obviously the agenda right now is pretty deregulatory. So any efforts coming from the SEC or not? Would almost certain would be in a situation if they thought the states were being too strict. And right now, the states are racing to be as not strict as well strict, right? That was my. Next question is, how would states start to react to this? Which is to sort of say, what do you need? Well, that's exactly what we just saw. I think again as be 21 which really loosen the standards for cleansing conflicted transactions. Now I don't know if there was a real threat that Congress would step into the space, but again, that's what you know, Elon Musk was making noise and maybe if they kept their law, that just that strict eventually Atkins would be making noises about that shows. So there was some Not only was there potentially pressure like from other states. This is so called race to the bottom. That people exactly talked about for a very long time. But potentially, there was also something thinking at least in Delaware maybe other states that we need to get ahead of whatever the federal government want. Might want to try to do to us. Yeah, and that's actually happened the other way as well. Like when it looks like Delaware is afraid that it's too lacks and Scandals happen. Then it tries to get ahead of that as well to avoid, you know, to avoid Federal preemption to avoid Federal preemption to avoid Federal, the federal government, making a rule on this at the federal level. So there's always been that kind of interaction, this kind of tug and pull exactly between the states but now we have a much more robust. Yeah, understanding of where that comes comes from but I'll add like. Another thing though, is that the vast majority of congressional regulation of corporate governance is for public companies, listed companies and increasingly of course, I usually care about is because right exactly. But increasingly, of course, companies are staying private, which they can do, because Federal Securities law allows it and Atkins. And there's a lot more money and allow people to stay. That's basically, you couldn't, it didn't used to be legally possible to raise that much Capital without going public. And over time, The SEC has made that easier and Atkins wants to make it easier still. Right. And since most of the federal corporate regulation is for public companies, that's an area where lacks State regulation could have bite. I mean over time, like, you know, let retail investors invest more in private companies. I mean, I think that's sort of a weird thing to say, because of retail is investing in a private anymore, but whatever, but retail investor invest more in private companies. Well, these are not companies that are subject to any, of the federal corporate governance standards know. So you have a few scandals and that's going to be state law. Dictating what the hell happens. Oh, interesting. Oh okay. Oh so I think we have started to get the answer to the last question. That would be on my mind about this which is what's the chances of some of more Federal incursion. Yeah but again there's there's two by incursion. We mean two things. The first that I kind of thought of was you know, what kind of laws and regulations so forth but there's this whole idea which really opened my eyes to this, that the Federal Government can incur on State. Corporate oversight of Corporations just by making speeches. Yeah, the threats so I, you know, would not at all, be surprised if Delaware sort of response to that, right? Heavy-handed request, you do anything to Delaware. Exactly, but, you know, the sec's regulatory Powers is strong enough and they have enough influence soft power with companies that I'm sure there are multiple ways that can make life difficult for Delaware if they want to and so there's there's maybe a little bit of preemption already happening. Yeah. How about that? They're forces to take action. Certainly encouraging Delaware to take, right? Yeah. All right. Wow, this is a this is a much more complete view of this that I even barking for I think, right? This is wonderful. You're you're the idea that I cannot bounce all these random questions off of an expert is really, really convenient. So we can do more of that at some at some later point but we'll find some other subjects that that interests people to has that. Okay? All right, cool, we're gonna wrap up then we will return next week with more and different and interesting stuff. But in the meantime this issue our older Primacy hosted by Anne Lipton and me Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations and is Professor of Law and Lawrence, wuth chair of Business Law. At University of Colorado, law school. You can find me Mike at the activist investor.com and atla.com edu. Our podcast is produced and distributed by the good people at free float. Yeah. Thanks for listening. We will talk again very soon.