North Dakota

I don't know that this blog has ever been visited by anyone from North Dakota. But if you drop by in the future and see this message: Hail!

I understand that last year your state enacted a remarkable corporate-governance statute.

It creates a new chapter of the state's corporations law, 10-35, by which a company chartering in that state can opt to be governed. If it does, it will get a low franchise fee, only half of what it would pay if it incorporated in Delaware, but it will have to abide by various rules designed to keep the management responsive to the shareholders.

For example: the term of directors shall not exceed one year and will not be staggered into different classes. So every annual meeting will involve the re-election (or not) of the entire board.

The chairman of the board will be ineligible from holding any executive office. We've become accustomed to seeing the phrase "chairman and CEO" after a bigwig's name. The new 10-35 corporations will have two people for those two distinct posts.

Provision is made for access to the company's proxy materials by major shareholders -- provisions analogous to those recently considered, but never adopted, by the SEC.

Shareholders must approve of certain public issuances of shares: in other words, they can veto actions that would dilute their voting power.

There are other important provisions in 10-35, but those examples will give you an idea of the direction of the whole package.

What difference might this make? Are a lot of firms going to beat down the door to re-charter in North Dakota, either for the low franchise fee or because their shareholders are pressuring them to do so or for any other reason?

More on this tomorrow.