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North Dakota Publicly Traded Corporation Act

The governor of North Dakota recently signed into law the North Dakota Publicly Traded Corporation Act (ht: Broc Romanek). The Act resembles a shareholder activist wish list including majority voting for the election of directors, elimination of staggered boards, advisory shareholder votes on executive compensation, shareholder proxy access, proxy contest reimbursement, poison pill restrictions, etc.

While the Act is certainly groundbreaking, my view is that it was enacted as a publicity stunt. The practical effect of it is likely to be zilch. The Act only applies to public companies incorporated in North Dakota that affirmatively opt-in through provisions in their articles of incorporation. Hence, shareholders cannot unilaterally opt-in a company since an articles amendment requires board and shareholder approval. Additionally, a grand total of two public companies are incorporated in North Dakota (Dakota Growers Pasta and Integrity Mutual Funds of Minot), and there is no reason to suspect that they will opt-in.

Even if a corporation wanted to grant shareholders the rights provided for in the Act, it seems highly unlikely it would do so by reincorporating in North Dakota and opting-in. Instead, it could simply tailor its governing documents to strike what it believes to be the appropriate balance between board and shareholder power for its particular business and continue to enjoy the benefits of Delaware incorporation (business savvy judiciary, responsive legislature, etc.).

Of course, the genius of American corporate law may ultimately prove me wrong, but I doubt it.

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