Delaware statute amendments

Welcome to Cheryl the Primacy from freefloat media, a podcast about activist investing security law and all the ways, the financial and legal roles intersect and Collide in real life. I'm here with an Lipton law. Professor Tulane New Orleans. You know, it all who teaches and researches Securities and business law. She holds up and talks intelligently about the legal end of our podcast. And that's Mike Levin an activist investor who lives and works in Chicago. He covers the financial side of our podcast, or I try to probably don't do as well on the financial side, as you do on the legal side. But that's this week. Let's return to Delaware, though. Not in person. When's the last time you were in Delaware. Okay. I've never set foot and always there and so forth. They don't know. I mean there are some conferences. I've never. Been embarrassing because you know that's the joke I tell when you're not here. Is yours some conference someplace. I'm very often now but it's not. Fine. Well, last time I was in Delaware. Everybody here knows is I was I was arguing my objection and Detroit VT Tesla which podcast and that was a year and a half ago. So I've been there more than you have. Well, that's interesting. Yeah, I know, I mean, I might have like, you know, driven through that was, but that's not impossible or taking a train that passed through, right? That was, that was my experience up until October of 23 when I driven through and so forth. But I got, I spent two days in Wilmington. It was Just kind of interesting. Anyway, we're gonna return it Delaware in spirit and intellectually. And we're going to talk about the outcome of the very brief, but very intense process, that the state put itself through to change the statute. There that pertains the section 144 that pertains to conflicts and Independence and also the part of the statute to 20 that pertains to books and records. And there's potentially firing impacts that people have been cogitating about both of those amendments themselves and all. So of the process that Delaware went through to kind of get there. so when we last talked about this about, I think about four weeks ago, when the bill had just been introduced SB 20, And it was going to really dramatically change it. So let's what happened in those past, three, four weeks, maybe let's talk about what happened to the law and then we could talk about everything else. Yeah. Yeah talk about it. The bill had just been introduced about like February 17th or so and right after we recorded that episode before it even became public, some amendments were made to the bill. So it changed a little bit from what we described in our podcast. And that new bill with those amendments. Was the one that actually ended up passing into law. So, I'll talk a little bit about what the final law looks like. And I'll highlight how it changed from the way we just described it. Originally when we talked about it, so, Just background. We said this many times on the show. Yes, one thing about Delaware the corporate law does is it overseas conflicted transactions when the company does business with one of its own directors or officers are controlling shareholder. A lot of potential in those cases for The Insider to exploit the company. And so if a shareholder brings lawsuit over that kind of contract, Delaware courts will examine it very closely to determine whether it's entirely fair to shareholders which is a very searching inquiry. Now, sometimes I got Airness, as an examination. Was the companies win? They proved that the conflicted transaction was entire he was a fair outcome. Fair process. Exactly. Like when Elon Musk caused Tesla to buy Solar City that went to a trial and the core concluded that that was fair to the Tesla shareholders. The Tesla shareholder said they paid inflated price for Elon Musk of a company Solar City and they lost the court said it was entirely fair but usually companies they just don't want to even go to the trial, like even if they are going to win at the trial and they may lose you don't even want that trouble. So right exactly. So the way that you avoid that is you cleanse the deal. Meaning, they have an independent decision maker approve. The trends action before it gets to a courtroom that decision maker usually means the board or Committee of the board. That's independent or you could take it to a shareholder vote and have the disinterested shareholders, approve it. And if you do that, just I'm sorry, just shareholders the ones not included. Exactly the ones. Not exactly correct or the CEO or the other. Investors or whatever. They can't vote on it. Yeah, that's usually the way it's done. So, if you cleanse it, where the disinterested shareholders, the decent interest in shareholders, actually vote in favor of it or you have the independent board approve. It the court won't examine the transaction for their even if there's a lawsuit. So, that's sort of the basic setup. Now was so restricted. I don't think it was, it wasn't because right there. Well, Was the shareholders voted? Yeah, I'm filming the Tesla. If I recall correctly, the issue was that Elon Musk was deemed a control. It was possibly a controlling shareholder. Yes. And given that well it wasn't like the court didn't decide whether it was a controlling shareholder. They said that it was they didn't have to ask whether it was cleansed because they said it was entirely Fair. It was sure. It wasn't sure how you would cleanse it but it was entirely fair and so the court didn't have to go. That's right. Cool. Anyway so this new, as I said, one way that you cleanse It Is by having independent directors approve. So the new legislation, the first thing they do is change how courts will evaluate whether the directors were independent for the purposes of cleansing under the new law. If the company designates, a board member as independent under exchange listing, rules that board member is presumed independent. Unless the shareholder puts for some fairly detail to evidence that they aren't and that was true in the original version the amendment to the final Builders a little tweak. The problem with the original legislation is that exchange listing rules only ask if someone is independent from the company. They don't really ask whether someone's independent from the other directors of the other interested parties, and that's the relevant question, when children bring a lawsuit in the context of the lawsuit. The question is, whether a directors independent from the company, which is what the exchange is, singles are about. The question, is, whether a directors independent, from whoever, the conflicted person is, so right, the director can make a fair decision about that person. So the final law kind of acknowledges this by saying if the transaction involves a controlling shareholder will take the exchange standards for independence from the company and asked if those same standards work for the director with respect to the controlling shareholders. So that a particular director can be deemed independent from that controlling shareholder, using the exchange standards as if the controlling shareholder with a company. So we're applying those standards like to that to the CEO or the right. Yeah. Right. Exactly. The controlling shareholder. But it only shoulder but it doesn't change a whole lot but it just brings more questions. I mean, the whole theory of the original one is when you trade on an exchange companies are required to designate. We think these are the independent directors. They do that in advance. They do that before any conflicting transactions. They do that before. Any children lawsuit, they say these are the directors we think are independent. So the theory was for shareholder, comes along them, brings a lawsuit. Those directors are sort of Presumed independent and a shareholder, has to robot it with some detail debits. But the exchanges don't require you to do an evaluation of whether directors are independent from the controlling shareholder. Like that's not That's not how the exchange is think about this. The only thing about that company. So what I can't tell from this legislation is Sheldon brings a lawsuit and the question is, whether is independent from the controlling shareholder, do the boards. Make a determination in the first instant and there's a presumption or does the court just examine it? I mean, it's really unclear what we're doing here. Like I just I can't even tell whether there's the same presumption or whether the board gets to make a designation, does a board get to make a designation in advance. Does it do it? I just, I have no idea. I don't know what's envisioned here, but this all gets back to something that we talked about last time which is this is Delaware functionally, Outsourcing its independent standards to federal law to the exchanges to the is to the SEC, which blesses exchange and yes, he delegates. Yeah, dependents to the exchanges essential exactly the exchanges make their rules, the SDC, approves it, you know, there's this relationship. So Delaware, it's always held itself out as the expert on corporate governance, it sets the standards others follow. That federal law, the exchanges, make this determination in the first instance. I mean, it's just an extraordinary restraint by the state. So that's the first thing that the legislation. All right, so there's the independence issue, all right, go ahead. Okay, and now I get to this cleansing so let's assume no controlling shareholders involved assume. The problem is, there's some conflict among the directors. There's no single controlling shareholder. So, the usual rule is you can either cleanse by having independent board members approve it or cleanse by having the shareholders approve. It, let's talk about shareholders first. Shows are proven to vote, get a vote like, you know, put out a proxy statement, you put it. So both the original bill and the revised version allow for conflicted transactions to be cleansed by shareholder vote, which is always been the rule, but there's been a critical change. The original versions specified that shareholders. Had to know the material facts of the transaction. And specifically had to know what these directors involvement in how they were involved in. Negotiating it what their interest was all that had to be displayed that now was just taken out. Now, it says, the shareholders have to be informed. That's all it says. Now if there's board approval, we'll get to board approval. If there's board approval, rather than shareholder approval, the board, according to the statute, has to know the material facts, the role of the interested directors, and negotiations, all that, but for shareholders, they took out that shareholders had to know how the interested directors were interested in what their little negotiations for it, deleted that language. And now, it just says Gerald has to be informed. So that was an amendment to SB 21. It was a very sounds like made it kind of worse. Exactly it. Made it worse. So let me explain why it's going to be. Before any of this legislation, there were a lot of cases where shareholders voted to approve a deal. But then after the fact, when there was litigation the shareholder, the Court held that the shareholder vote wasn't informed. Because the shareholders warrant told about defects in the process by which the deal. There were like some directors knew each other, right? Eyes are like completed advisors was a big one and this is this is what happened with the LMS pay package. The shareholders were told like they knew the economic terms of what his Paypal package was right. But the court found they weren't told about how musk interfered with all the board deliberations and in these cases, defendants have argued. And this is what muscles are doing right now, for the Delaware Supreme Court, and his appeal of the payback decision, the defendants argue that it's fine to shareholders, only know the economic terms. They don't need to know all the details of how the deal is nighat, how they got there, right? So the original version of this that's awful at this bill you need to know that. Followed existing law, the new version takes all that out. Now it doesn't say shareholders, don't have to know it. It does say they have to be informed and if you know right here informed could be exactly. So I think that's what the surprise statue is trying to do. It doesn't say it's supposedly, but I think that removing the language requiring shareholders had to know all the facts about how this was negotiated. I think there's teeing up an argument. If this ever gets to a court that shareholder approval is sufficient. Even if the shareholders don't have, it doesn't matter, which shareholders saw what they're voting at, as long as shareholders voted, it didn't exactly that. We'll see, of course view it. That way. I mean map See if any case even gets to a court which point I doubt, but I think that's why the language changed the defendants have been very unhappy with these rulings where shareholder votes were rejected because they didn't know all the process and I think this is a way of trying to undo that line of case law. So that's that's what it does about Gerald about. All right. Yeah then we get to cleansing. At the board level and the original Bill, even if a majority of the board was conflicted, you didn't actually need to use a committee the entire board could deliberate together. And the transaction would be cleansed if of this entire board, this majority conflicted board. If of the independent directors who were on the board, a majority of those voted to approve it, the deal with the cleanse so imagine a nine member board with a single unconvicted director if the whole board voted in favor of the deal, eight conflicted to one and eight to one but that one completed with the majority if they voted with it then the deal would be cleansed because a majority of the disinterested directors, the one guy proved it in favor that was the original Law. That's not the new one, under the new one, the law as it actually passed. If a majority of the board is conflicted, the board has to create a committee to approve the deal. This is a committee of two or something. Yeah. And the committee has to have at least People on it and they all have to be independent which sounds really good. It sounds stronger than existing Delaware law. Because under existing law, we had a whole show about. You can have one person committees and under existing law. If you had a more than one person committee, it just had to be majority independent. The new law says you have to appoint a committee that's entirely independent. But there's a catch because there's always there's always this is the cash when the board puts the committee together. The board has to name two people and the board has to determine that the people that at least two people, the board is to determine that. Those people are independent, but if a shareholder comes along and proves that they were not independent, the transaction is still cleansed so long as a majority of the, actually independent committee members of the deal. In other words, the board has to choose the ones it thinks this conflicted board. By the way, it's a majority conflicted board. It creates the committee, it gets to decide who it thinks they're disinterested but there's essentially no penalty if they're wrong. So let's say this majority conflicted board creates a three-person committee. The board. This majority conflicted board has to make a judgment call that those three are independent. Those three, let's say they unanimously approve, the deal. If a shareholder later comes along and proves that two of them were not independent. So this was a majority conflicted committee. The deal is still cleansed so long as that one remaining one, the one who was actually independent voted in favorites in favor. So I mean what this looks like to me honestly is that the lawyers said, well, this is what An inscribe it is. Okay. And it's a lot because most of the time, when boards create committees, they usually do have committees with at least two people, one person committees are kind of rare so they usually create two person committees at least and they usually probably make an effort to make sure that the people they put on a committee aren't obviously conflicted. And so the law says, as long as you do that, as long as you do, what you are always going to do anyway, which is create a multi-member committee of the people who aren't obviously conflicted, we're making it virtually impossible for shareholders to challenge. So that's how you deal with board level conflicts. If board-level conflicts, it's committee approval or shareholder approval, right? And it's either or previously under most situations, it was both no, no that was for controlling shareholders or controlling shareholders we're getting to but they take that. Yeah that Elsa right? So there was always either or what they've done is they've weakened what either one of those look like by weakening the information standards for shareholders and weakening the committee structure for board. That's a great Point. All right. Yeah and then we get to control and shareholders so under the old Delaware law control was this urn determinate concept, you were definitely a Control. If you didn't have 50% of the votes, you might be a controller if you functionally, with voting power, or contractual power or even just sharp power you had the ability to control the board and under that law first, we would say, the controlling shareholders open, do Sherry duties to The Entity. They couldn't just use their power to benefit themselves with minority shareholders expense, right? And second, if the deal involved a conflicted controller, it had to be negotiated by a completely independent committee and separately, had to be approved by the disinterested cheer holders, who were fully informed of all material facts. Well, the new law mostly changes that first it defines controller very narrowly 50% of the votes, you're a controller, that's still true. And if you have a contractual power because Delaware now allows these really over under last under the Morales. Yes, exactly. Right. If contractual power to see a majority of the directors then you're a controller and that part is knew it was just added in the recent in the so that was part of the amendment to ask, okay? But if neither of those things are true you don't have 50%. Of them to actual power to see the majority of the directors. The only way you can be a controller is, if you have at least one third of the voting power, plus you have to be able to exert some control over the board. As we said last time, that means that if you have a stockholder agreement that gives you functional control over all board decisions, which again now possibly now is totally legit. Yeah, if you have a strong, it gives you control over all board decisions. As long as you don't actually have one third of the voting power and you can't see a majority of the board, you're not a control, you'll never be a controler. Exactly. Which means you don't. have a company, you can exert, control, shellfish, you can cause the company to engage in conflict of drugs, actually, you could spend money right without regard, whether it harms the other Stockholders. And if you do have a conflicted transaction and I don't even know if you counted as a conflict because you don't count as fiduciary. If you do have a conflicted Trends actions, you get this same ordinary cleansing procedure that we just talked about, right? The board alone or shareholders alone. One of the yeah. Um, so so well, I mean, if there are conflicted, transactions, if you count as a controlling share, whatever. If you don't count as controller, I don't even notice. But anyway, so what this means, I mean, it's practical matter. Is it encourages you to shareholder agreements? I mean, why would you risk being designated a controlling shareholder with fiduciary obligations and conflicts and you have to cleanse the conflict, some way? Why would you even go through that? If you can just have power, the same kind of power, but not be designated a controlling shareholder. So I think that honestly, from an academic perspective, what I expect to see is really interesting, empirical work about companies going public. Now under the new law and whether they issue dual class structures in favor of shareholder agreements, because that way, they can make sure that they're not control. That's an interesting prediction. Yeah. So, and they're not subject to any additional procedure at all. So anyway, so that's the first thing Delaware. Now, Define to controling shareholder, extremely narrow. But now let's say you are controlling shareholder because you have majority of voting power or whatever under the original standards. As we said, you needed the board approval free SP before it SB For all of this exactly. You needed both board approval and shareholder approval before a conflict transaction to be cleansed. Under the new law though, you all. The only time you need both board approval and shareholder approval is for go private for a buyout. Exactly. When we're taking your private shareholder is buying out the minority shareholders and do listing their company, any other conflicted transaction for a controlling shareholder, only requires the same Either one board committee approval or shareholder approval on the same standards that we just talked about with this weird picture really kind of what we're now. Exactly you just need one. So this is why I think it's interesting. If you compare the law that passed the original bill, that was proposed the new bill. Stronger because it has this thing about the board committee has to have two people on it. But the old bill at least required that the committee had to be majority disinterested like actually majority on conflicted. Whereas the new bill has this wacky, well, the board determined that their independent, they're not independent. It's kind of okay. That that. So the version the actually passed adds a lot of extra procedure but in fact makes it a lot easier to cleanse deals including with this lesson weekend. Shareholder information. Um and then of course if it's a go private you need both triggers right. And that's very clear. And that's right. Yeah. And like I mean just like be clear. Like what? Like one example, by the way of like, A go. Like right now, there's this para. Not transaction. That's Kind of apparently Cherry Redstone, she's a controlling shareholder, she's being bought out by skydance and like it's different. Because kid, exactly. She's getting paid more consideration than the minority shareholders. That is not, that is a conflicted transaction, but it's not a go private. So, if the new standards were to apply to this one, you would only need one trigger board, committee, approval, or shareholder approval. That's how narrow this is for, in terms of protections. And the last substantive thing. In the new standard, his books and Records. The original version of the bill wouldn't have allowed shareholders to obtain. Informal materials like emails, like contracts, internal communication. Yes, all those, yeah. All those internal Communications, that didn't circulate formally in the board meeting the new version. Actually, this is a real change. It will allow shareholders to get those materials, but it's a extremely high bar for sure. There's again, in terms of proper purpose. Yeah, that's a show like, like, what's specificity a really high need and the final thing is retroactivity The original version of the bill didn't say, whether it would apply to pending cases. And, like pending cases, like, tornadoes mosque, that pending case like the Paramount merger, the original version of the bill didn't say, whether it would apply to pending cases. And whenever the legislators talked about it, they were really cagey. They were little koi. Yeah, this bill went through the edits and there was still games. So at first, the amendment said, the new law would not apply to any cases that had been filed as of the date. The original bill was introduced February 17th. So, under that standard, it doesn't apply to the current pending cases against mosque, including the PayPal package case, right? But then originally, they actually included a note and they said this bill doesn't apply to pending cases, but of course, should be feel free to take the standards in the bill as a statement of was like, it's not retroactive but everyone saw it. I mean, we could all remember it. So the end result is that pending cases are not affected the pending lawsuits against Elon Musk for not affected, but any new cases filed, since the introduction of the original bill, then February 17th. Those are subjects the new law. That's pretty clear, I think. Yeah, that's that's clear. But I mean this is such an incredible slap in the face to the Judiciary. I mean I think it'll be difficult for them to look at pending cases. And just ignore how much their entire approach over 40 or 50 years it's been rejected by the legislature. I mean, I think for sure the judges are going to try to decide the cases before them based on the law that applies to those cases. But I think it's going to be hard for them to just Escape psychologically, that sort of in this, in their subconscious, there's this new law. Exactly. And then like, you don't know which Ones. Like, on the one hand, they don't want to like Apply the new standards prematurely, but on the other hand, they took a rebuke, but on the other hand, they don't want to try too hard to responded. Like a guitar only see like, I don't know which way it cuts, but I think it puts the courts in a very difficult position. here is Cheryl should never win lawsuits. That's the collective effect of these changes, they're telling courts dismiss the cases and that's hard for kids to ignore even for the cases that are not technically subject to the new one, right? They're gonna there's there's this kind of Worried, like I said in the background that, you know, what? If we, if we kind of don't follow this, what are they going to do next? Exactly. All right, so there were, let's talk about a couple things intake, a break, there were a couple, there was some things that were proposed legally or legislatively or statutory that were not adopted. That seems to kind of respond. And we'll talk about the Hue and cry in Delaware over all the politics. Yeah. But for now what was proposed and decline or rejected. Okay. So yeah, there was a lot that was proposed and rejected and when you hear like, how sane it was, and how much they rejected it, it's really interesting. So one proposal was to expand this dual protection thing. So we just said that the Dual protections were controlling shareholder deals and control to find very narrowly, but if it's a controlling shareholder conflict, you only require both board approval and shareholder approval if it's a go private. So one proposal would have said, how about for all Extraordinary transactions any place where it's a reorganization or the existing shareholders are losing their stock. Like so there was a proposal like the Paramount deal. Like, if the Paramount dealer to this new laws, I just said it would only require one layer of protection. So, the proposal was, what about those kinds of extraordinary things? Why don't we make all of those subject to the Dual protections that was rejected. There was another, that would have changed the effective date, so the law that passed doesn't apply to pending cases, but it does apply to any new cases filed, even if those cases Concern older transactions. So that means if there are deals out there that right now playing, this have been investigating getting ready to file a lawsuit. They're going to be subject to the new law. So there was a proposal that said, how about we have it so that the law only applies to transactions that happen after the effective date or after. All right. So they could sue within the statute of limitations next year, right, right? So and but know that was rejected. So right now there are like cases were for example, shareholders may have already made a books and Records demand, they're already investigating but if they file a lawsuit now it's going to be subject to the new law and because that proposal was rejected, another amendment was proposed to change the committee thing so that the boards would have to actually be disinterested that there wouldn't be this weird situation where the board decides if they're just interested and if it turns out there not it's okay. Anyway, they wanted to make it so that the committee's actually had to be uncomplicated that was rejected. But the proposal that got the most traction was to make the whole lot opt in meaning if companies wanted to be subject to this new Lighter regime, they'd have to actually adopt a charter amendment that explicitly said, yes. We like this lighter standard of review for conflicted transactions and a charter amendment, of course, requires a shareholder vote. Right? So now, the original proposal was since Charter. Amendments require a shareholder vote. Well, the issue there is like what if it's a controlled company? What if it's like Facebook not I can't call that. What is Facebook where Mark Zuckerberg? Like he controls the boats and he'll control to give himself a free pass. So the original said that if it's a controlled company, then the minority shareholders minority, the majority. The majority of minority have to approve that that Charlie. So that was so that. So it's functionally, the minority shows have to agree to lose their litigation rights and if it was an uncontrolled company, they just have a shower vote, but that wasn't getting any support. So the proposal was changed to just require a straight Charter Amendment chair, holder vote with no majority of the minority condition meaning that if it's a controlled company they could just sort of force the change through. You don't laterally and the argument in favor of that was well, all these changes to Delaware law being made a sensibly to prevent companies from Marine corporating out of Delaware. Well, reincorporation requires a shareholder vote. So instead of giving company insiders, all this blanket immunity will give them a choice. They can have a shareholder vote to reincorporate out and if they're controlled the controller controls, right? But either way, they have to have the vote or they can have a shareholder vote to just a job. These The theory was it's the same process so we may as well just make it opt-in for this lighter review regime. But nope, that was rejected too. And it actually got kind of testing and NYU Law. Professor was testifying in favor of an office. That was at Jackson. I think commissioner the house speaker in Delaware. Actually shouted at him to leave the podium and even watch the video. It's actually a really shocking moment. It's bad. Um, and I just gotta say, I'm it comes out of her. I'm really disappointed that no opt-in proposal succeeded because just, I really curious, how many would opt in and how would they do it? Yeah, we said before, plenty people argue that children litigation Justice and valuable that even if like they'll agree that this case was really beneficial. But they'll say in the main given how many nuances are filed given the cost of dno, why billion insurance and all of that, it's just not worth it to have shovel litigation be a thing. So I really wanted to see what shareholders thought like, Evelyn the big mutual funds like BlackRock and Vanguard. Did they agree that shareholder litigation has no value. Would they have voted in favor of this lighted regime later regime? But we never know because or at least we don't know and that would have been the perfect illustration. I can't think of a better example of private ordering. Of a flying private ordering till like to accompany, which is what you know, a lot of folks really push and fly. they say one private room, but I think Inspires, because the thing about an opt-in is like, the Optics of it, it would mean that the corporate managers the Mark Zuckerberg's of the world would have to have to subject himself to this vote. Exactly. Shoulders and say we want to be completely free to engage and conflicted transactions without judicial oversight. They'd have to explicitly. Make that vote for me, please. Yeah. And even if the vote outcome was certain like a Facebook. It's embarrassing to say to shareholders, hey, we're affirmatively. Choosing to be able to freely engage in Conflict, the deals. So they launder this through the Delaware legislature, I mean, everyone knows the corporate managers and their law firms. What kind of bullying these changes through? But this way, they don't have to actually go out and put their names on it in a statement. So the opt-in proposal was rejected all right, so We've got the original Bill. We've talked about, we talked about all these amendments in a couple of small ways, the Amendments improved a little bit and most ways it made it somewhat worse. There were a whole bunch of proposals. As the politics got heated, none of them were adopted. And now here we are with a much weaker set of controls over. What it means to be independent and what it means to be a controller and how their interests are Subject to much less scrutiny now basically. Yeah. Alright, let's talk in a minute about what all this means, like, for shareholders and for activists and for the state and so forth. But let's take a break first as that sound. All right cool. We'll do that and talk more about Delaware here at your holder Primacy. Cheryl Primacy is brought to you by free float and lyrics.com the only free database of corporate directors their influence and their performance. If you own a stock or retirement plan go to free float, 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, Welcome back to shareholder Primacy. I'm Ann Lipton here with Michael Levin. So we'll continue looking at what happened in Delaware and what it means for companies activists Shareholders. And Delaware itself. Yes, we will. Um, I had a couple of observations as more of an investor looking at this, you know, who I didn't follow every twist and turn. I tried to, and really hairy trying to trying to, you know, and they were also good, resources chance to read daily. Get this everything. Yeah, some others. So I kind of was I got lost after a while so that's why I was really eager to kind of hear from you exactly what what to pay attention to, but I still have some thoughts. One of the first comments is it's still early. The ink is like West on this thing. It was only approved last in a vote like last Thursday night, I think, right? Yeah, this yeah, it's something like that. I don't remember. I think it was just a butt like the governor then like Flew in to Dover like, immediately, like, like, add to travel across the state. It's not a big state, but they had to travel across the state so he could sign it that evening, right. And that was, I think it was signed. I thought Thursday night. So, so is we're, as we're taping this on the weekend. The thing is like two or three days old. Yeah. Um, and so and the point there is, there's a lot more to interpret about it. There's going to be some cases. We can talk with, it's gonna be all sorts of twists and turns. So anything we kind of say here is probably based on very informed speculation about what's going to happen rather than, you know, I for sure you hold a litigation but, you know, proponents keep insisting. That is not true. So we shall see exactly or I love your point about how We're going to shift away from Dual class shares and more to just shareholder agreements. You know, why, why would you like Risk having all these tool class shares and Counting votes and all sorts of fun ways? And not just just have a shoulder agreement that just sort of gives the founder or whatever some rights that you know, wouldn't normally be found. And then the second point is there still going to be some cases? You know, we were there I mean this this new statute or these amendments are going to be tested and so it's probably going to take some time. We think you know, and part of the problem is that based on What we sort of saw in the political debate is, we don't even know who's going to take on cases challenging this. That's one of the bigger, one of the big risks because it's potentially that a lot of the firms that would normally take on a company or try to challenge a conflicted transaction or something. May not even want to try. Yeah, I know what's EXP? I mean, it's between the actual standards and the message being sent to the Judiciary. Create the, you know, the prospects for winning seem rather dim, seems somewhat lower and that was the point. And I'll get to that, I'll get to that point in a minute. It did seem and we've talked about this before and there was all sorts of observational. So it's a news reporting that this was an unbelievably politicized process, very New Year's. We talked about this before that. Usually the Delaware legislature, just rubber stamps with the State Bar, what's in front of him? And that's actually did not happen and there's more and more evidence that was coming out. That Not only was the firm that defended Tesla involved, but that meta was very heavily involved in the drafting of this and the observation. And if, you know, I used to when I was in, this is in the 80s. I worked in the state legislature in Illinois. Okay. And, and for six months, And and I gotta say, you know, State legislatures can be really kind of backwards places to have done. Okay? And I would guess given the history in Delaware of the legislature probably doing other stuff that you know, matters the residents the good state of Delaware but not really having much to do with corporate law that they were like a rich soft target. That it was kind of a sleepy, you know, set of lawmakers, who really didn't, have a whole lot of experience, most of them don't know, corporate law at all. And that's right. You gotta that's kind of why that was straight. The theory was that they don't really have much of an industry. There are tiny State, they don't have that much. You know, that actually means that we take the politics out of corporate law rights, that was well. And so you get a bunch of legislative looking at billions of dollars and franchise fees. And you had some corporate interests that kind of swooped in on him and said, this is all at risk. There's Walmart's even considering. Yeah, that was some news report Walmart's going to change your domicile so forth. Right. And so, um, you know, setting aside Walmart would have to have to have a shoulder vote to prove that. I don't know if they win it. Yeah because well yeah, okay, fine, great Walmart, family, cool. Um, but so you had a soft target, a bunch of legislators that were being threatened to lose you know, billions dollars in franchise fees and so forth and so they panicked and it didn't you know no amount of you know last minute and you know there were like two weeks in which the parties had a chance to try to influence the legislature. I'm guessing this had been kind of cooking in the legislature from months before this it just hadn't wasn't really ever. I mean that's not the reporting that we are. I mean like certainly at some point like it was likely that I think it's actually really more like last year they bullied through, you know, they pushed through these extraordinary changes to allow those contracts to override decision. And I think that's when they figure out that hey we can just Change the lock here. These, you know, they realized how much influence they had and then that like that last year, so it may have taught them. So this was how easy it was to do, right? And so these are actually mounted this huge opposition last year and I didn't make a dent and they realize, you know, well I mean yeah with with all due respect law, professors don't spend a whole lot of money in legislators. Yeah, that our voices are not as influential as we would have. That is influential is expensive lobbyists threatening you know, billions dollars and franchise fees. Yeah. Um, so as I said, it was kind of a soft target now, in terms of the impact, and we, there's a couple of other kind of Dimensions to this and I said this before, is that You know, shareholders will probably lose some protection. There's, you know, there aren't as many You know, activists don't, you know, try to avoid control companies. Okay, so there and and the percentage of companies that are kind of controlled. Isn't that high though? It's changing because the definition of control just just got moved, okay? But activists aren't going to see like an immediate like, you know, impact though, there's a couple of contingencies on that, okay? And again activists trying out to, you know, get involved in lawsuits about this kind of stuff. So, you know, we're just trying to elect a directors And try to you know improve oversight of underperforming companies. All right. And so you know in the next year we're probably not going to see that much but but we talked about this earlier, it's not clear kind of what We mean by a transaction, clearly a go private transaction. There's you know, there's things that are clearly transactions but there's other aspects of transaction. You know, to what extent is this going to affect Board elections to what extent is it going to influence? Increasing use of these kind of private agreements with shareholders, that's going to really start to have an impact. But we're probably going to see that for for a little bit. Yeah. It's gonna take some time to react to this. for about, I think, I mean, You know, again it's new. We don't know, but it's Easy to the most obvious things that activists do over like activists can't get on the right. Records Demands a little bit, like it doesn't look like it applies to that. It doesn't look like it would apply to actually, like bidding wars over companies. Those kinds of things, right? So, when there's a public process, that's, that's kind of handled. Well, yeah, those are not subject to the law. Although I don't know how the Independence Day does might interact with some of that. um, so but other kinds of things that could Right. So um, so so I think, you know, as much as it bothers me, to sort of say, we gotta wait and see because there's some things here that are, you know, clearly especially like, you know, relying on Exchange standards for Independence, you know, that's just, you know, that's just horrible. Okay. There are some things where it may take a little bit of time, kind of to unfold. And again, we have to see some cases Rick and have to see some some, you know, some of our portfolio companies, try to test these, these new standards and some ways. And assuming we can get like, you know, it gets bad enough, we want to sue somebody over. Assuming we can find a company a farm to kind of take it for us, take the case. That'll that'll be. That'll be part of it. We are, I'm kind, I've been kind of wondering that as much as an activist but just as an investor what is going to kind of mean for the state of Delaware and other states? You know there's you know there's there's you know if you're following this you know Texas isn't sitting still in Nevada's, kind of wondering how should we react to this is you know it are they viewing Delaware as a soft target here too and I don't know what to make it. I was kind of wondering where you thought. Well, okay. So it's called because I didn't really think that that pressure was part of Of what happened? I mean, like a couple things ways you can think about it. So first, we just think about this in terms of Delaware, Um, so we talked about the politics, it was so there was so much, like, lobbying just doesn't happen. There was I read a report like 20 obvious. I don't know if I'm making that up. It was like, it was like, loaded with all these lobbyists who are lobbying the legislature in favor of the bill. There were competing websites that were set up. One side Pro one conjure, a consumer groups that were getting involved. There were tiktok videos. There were tiktok videos like talking about this like, you know, from like progresses like all the progressive Publications were calling at the Billionaire's bill and I have to say, this doesn't happen. This isn't how Delaware law works. It's not supposed to be so explicitly political and usually most normal people don't pay attention to Delaware law. This is the first time, a corporate law, God attention on tiktok and, you know, some sense like made it, my life that's kind of gratifying. But on the other sense it's sort of a warning sign for Delaware. I think, the reason for this is right now, it's a very Salient issue. How much corporate managers how much Oleg Arks like Elon Musk and Mark Zuckerberg. It's very Salient. How much power they have and this law, functionally removes, one of the remaining forms of judicial oversight on their behavior. I mean, we all witnessed how the Delaware Court of Chancery might have been the first and one of the few judicial forums to ever tell Elon Musk know. And now the legislative the legislature is removed that last remaining form of oversight. And I think that theme Resonates really broadly right now even among people who don't really understand the details. And that's why the opponents of the bill were able to muster up this popular opposition. But I think that also broke something in Delaware, like it can't pretend to be neutral and technocratic anymore. It just put on this display for the whole world to see that it's laws are controlled by a legislature. That's captured by corporate managers and his family by corporate controllers by Founders by Venture Capital by private equity, and absolutely. It has to cater to those groups. I mean, Delaware would always have to cater to those groups because it needs to keep him before corporations. It can't function if all the capital fleece but until now Delaware was able to maintain this illusion that it was making a balanced law that took into account. It was an illusion it, I mean that the legislature really listening I mean, up until last year, if you include Simply were not they didn't look like they were politicians. So yeah, that veneer of a political expertise. I mean, it's just gone and Delaware May retain the corporations of the short term but I think something was really damaged in the ecosystem surrounding corporate law. How professors think about it. How politicians think about it? How other countries other countries, they invite Delaware judges to speak and I don't know that that's like on the table now. So I mean I think it's gonna have some far-reaching implications. And what are the interesting things is, if Delaware just doesn't seem like the apolitical perfect ACT expert that's when other states can start to get traction. So Texas in the body, you mentioned, they decided to seriously try to compete with Delaware Nevada's begun. The process of creating business sports with a point of Judges that's going to take them a while because they have to amend their constitution, but they're trying Texas already created business. They have the business Court there, but they've already they're very new but they're already proposing to amend their corporate law to make it even harder to sue. Then Delaware has which is what we Law professors call the race to the bottom, race to the body, to insulate, corporate Managers from any shareholder lawsuits. So in Texas, one thing, they're proposing is for shareholders to be able to sue on most of their claims. They need to hold 3% of the stock. Oh, minimum shareholder. Yeah, that would be, that could be billions. So it would play and they would place even more limitations on books and Records access. And the Texas law has a thing where it would create your company, could create a standing independent committee and you could get Court blessing in advance. Yes, these directors are independent so that no one could litigate that later. If they committee approved a deal so you like like applied to the Texas Court? Yeah, these guys are independent, right? And if the Texas Court says, yes, then you would always accept them as independent, unless new facts that we're not presented at the time, came forward, they could never be that. Will there be? You know, I, I've kind of wondered where there be states that investors will grant gravitate to I think North Dakota. Is that, isn't that the one where someone's there? Yeah, I mean, here's the thing. The theory was supposed to be that shareholders will demand more protections and they'll price Capital lower, if they don't get them. And so managers will naturally gravitate to the jurisdictions that have more protections that they can have a lower cost of capital and Just don't think it works that way or it's not gonna work so that like VCS. Yeah. Or initial like, you know, seed and around investing, you know, when you're, when you're private still. Yeah, I'm gonna start your request. Yeah. I don't think that it's going to be such a lower cost of capital that companies are really willing like that the Insiders who shoot make. The decision are going to risk the lawsuits. I think what we're much more likely to see are ever more. Bespoke contractual kinds of limits and protections and when that happens there is a Visionary litigation. There's just contractual litigation have to take place in a court without being arbitration. I mean I think that that is how you're going to see more and more corporate governance moving into these contracts. But I mean, the thing that keeps strike, I mean like a tech. I mean What stands out to me, is that his Texas and Delaware, Nevada race to make it even more impossible, for shareholders to bring fiduciary duty claims. Yes, like why don't like you could write a law that says, shareholders cannot bring fiduciary duty claims, and that's very short and very easy and we're done. But instead, they have to write like ever more words to capture the principle that every possible Avenue that you're holders, could sue over is blocked. Instead of just saying shareholders, just say let's just come out and share, Rose can't sue over this. Exactly. So if that's the question, why I mean like, why are you writing paragraph long complicated have to read through multiple Clauses sentences. When you could just say shareholders can't sue and it's though to me that these states and the corporations, they have this basic sense that the public would protest. If they just openly, admitted to completely eliminating shareholder litigation, they feel some impulse to hold out, the hope that maybe some litigation would Somewhere. So that it looks like there are basic rules that are applied to corporate managers, but it's not true. They're taking away all the rules. It's so rather than, rather than just come out and say it, let's sort of pretend go pretend that you are going to create all these loopholes that. Yeah, Exactly just pretend that there are these girls and they don't have, they don't apply know. Yeah. All right, wow. Well there's going to be more to talk about, I think, probably in the next few months. So we'll just, you know, it's the new ones, right? All right. Well, we'll have to get ourselves to Delaware sometimes and try to and try to talk to some people about this. Why don't we? We'll take a field trip. A little research one of these days. All right. So but before then we're gonna have to wrap up and and maybe maybe let our followers move on to other stuff here. All right, go. All right. It's been true for talking about all this and we will return to Delaware at least mentally maybe physically sometimes soon. This is your holder 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 the Michael M fleis Professor in business law and Entrepreneurship at Tulane law school and an affiliate of two lanes, Murphy Institute, you can find me Mike at the activist investor.com and you can find an at Lon dot edu. Our podcast is produced and distributed by free float media. Thanks for listening. We'll talk again soon.