Delaware May Have Some Competition But Still Stands Its Ground*

Something interesting caught my eye this week.

Westlaw published an article on March 9 by Erik Krusch entitled ‘Corporate Governance: So We Loaded Up the Family and Moved to Ohio?!’ And here’s how the piece starts: ‘Low corporate taxes and high corporate governance standards combined with discretion for directors sounds a lot like Delaware. According to Abercrombie & Fitch, however, shareholders will get all of this and more by reincorporating from Delaware to Ohio. In recent years, several other companies and shareholders have attempted to move from Delaware to other US domiciles such as Ohio and Pennsylvania. So the question is: has Delaware met its match in either Ohio or Pennsylvania?

According to the Business Law Prof Blog (March 9), the answer to this question is no. ‘States can make changes to make their state law more attractive on the margins, but it’s not easy to make it worth massive changes for all or most companies,’ the blog states. 

But it’s a fact that over half of all Fortune 500 companies are incorporated in Delaware. Why is that? Well, among the most compelling reasons, corporate lawyers understand the state’s flexible corporate laws and its non-existent income tax on out-of-state filers. Moreover, in many cases investors are attracted to companies registered in Delaware. 

On the other hand, Abercrombie & Fitch (ANF) hopes that by cutting ties from Delaware and moving to Ohio it will gain clarity on corporate governance issues. The New York Times’ DealBook blog says reincorporation under Ohio law would afford directors ‘a clearer balance of corporate governance rights and obligations than Delaware law and would thereby enhance our ability to attract and retain highly qualified individuals to serve as directors.’

Nevertheless, packing up and heading out entails a massive amount of work, especially if it involves the 219-year-old institution, the Delaware Court of Chancery. 

So, putting governance issues aside, what else might have inspired ANF to make this move? There must be other motives. Any thoughts?

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