John Berlau:
Tucked into the 1,336-page "Restoring American Financial Stability Act of 2010," which was sent out of committee on a party-line vote in March, are provisions that would shackle Nevada and the entrepreneurs who set up corporations in the state. A small section of the bill with the stated aim of "strengthening corporate governance" would put states like Nevada at a competitive disadvantage by federalizing state rules for incorporation. ...One can only hope Harry Reid pays attention.
The businesses that incorporate in Nevada range from tiny firms to publicly held companies that trade on stock exchanges and the Nasdaq Stock Market. On WhyNevada.com, the Web site created by Democratic Secretary of State Ross Miller, the state government advertises the advantages of incorporating here, including the fact that "Nevada grants directors more flexibility."
But the Dodd bill would take much of this flexibility from states like Nevada and those public firms that incorporate there. ...
If this federal takeover of corporate law goes into effect, there will be fewer reasons for out-of-state firms to incorporate in Nevada. Why should they, when they would still have live with the federal government's new rigid rules regarding director elections?
But the bill wouldn't just hurt states like Nevada and the firms that incorporate here. The bill would harm the very shareholder interests it is claiming to protect.
Buying a stock is a choice, and shareholders benefit from having a variety of corporate structures to choose from. If they wanted to, they could choose a firm that requires majority votes for a board of directors. But they might also want go with a firm that uses the plurality standard, which is younger and more entrepreneurial.
The "proxy access" provisions are especially detrimental, as they would give leverage to activist shareholders who pursue special interest political agendas at the expense of ordinary investors.
Union pension funds, for instance, could use the threat of a director nomination to get concessions from a firm such as a "card check" election that would end secret ballot in unionization votes. And the radical animal rights group People for the Ethical Treatment of Animals buys stock at many firms for the sole purpose of introducing shareholder resolutions to stop animal research.
In the end, these provisions would hurt not just Nevada but the United States by imposing a one-size-fits-all mandate for director elections that would reduce options for entrepreneurs and investors. This could hurt the country's international competitiveness.
