Senator HARTKE. Let us take GM. After all, what is good for GM is good for the rest of the country, is that not right?

Mr. CROMPTON. You said that, not me.

Senator HARTKE. I did not say it either. President Wilson said it. Do you really believe, are you really telling me that what you said is your real concept, or do you really contend that it is sort of a nice

little nomenclature to throw in?

Mr. CROMPTON. I was describing what I thought was the Nader plan.

Senator HARTKE. Just one second.

[Whereupon, a brief recess was taken.]

Senator HARTKE. Let me ask you again; in other words, do you really believe the shareholder is one who has the effective voice?

Mr. CROMPTON. Well, he does in a number of ways, Mr. Chairman. I think you are right that the average shareholder of a huge corporation does not really have any opportunity to cast a vote on certain things that that corporation is going to do; but he might have an effect in another way by selling his shares. That is what I think some of the earlier speakers meant by the marketplace being an arbiter. I do not know that they said the exclusive arbiter. But it is an arbiter. There is another way. Sometimes even in a large corporation, the top 500, as you said, a group of shareholders might oppose management.

Senator HARTKE. They might, but chances are, they will not. Mr. CROMPTON. It is a difficult battle. Another avenue is the existing judicial process.

Senator HARTKE. You are really opposed to national chartering? Let me ask you, would you be opposed to having the duties of the directors and the general responsibilities outlined on a national level, say for those big corporations?

Mr. CROMPTON. I would not be opposed to that as a Federal versus State system; but, frankly, I am opposed to it in general no matter who does it. I think as soon as you start to define and codify somebody's duties like that, you are going to leave something out or be met with the ingenuity of somebody else who knows a way to get around it.

I think in fact the Delaware Bar Association just last year received a suggestion presented to it by the model business code draftsmen who want to set out in the model corporation law a definition of directors' rights and responsibilities.

I understand that that was warmly supported by managementoriented people because that would give a list of do's and don't to the directors. While that gives them some comfort, I think that tends to stultify the development of the law and maybe permit one to find ways around it.

I would prefer to have a general statement that a director will be held accountable as a fiduciary which is the Delaware law.

Senator HARTKE. Would you have that on the national level? Mr. CROMPTON. I would have no objection to such a national standard.

Senator HARTKE. As a fiduciary, just in regard to the financial matters of the corporation?

Mr. CROMPTON. And

Senator HARTKE. What with regard to any other type of results that occur in the social field?

Mr. CROMPTON. I do not know how you could divorce his responsibilities as a director of a large corporation. Everything that corporation does has such an economic effect, does it not?

Senator HARTKE. In your statement, where you talk about predictability and uniformity of decisions, they are more likely to provide a uniform national rule under the Delaware Corporation Code than any Federal Corporation Code. That would only be true if all the corporations were incorporated under the Delaware law; is that right?

Mr. CROMPTON. That is right; or if such a large number of them were, that other States follow Delaware's precedent.

Senator HARTKE. Are you not really saying then in substance, that what you would advocate is a national corporation charter in Delaware?

Mr. CROMPTON. No; that really was a response to what I think is a false advantage presented to a national charter. That is, that there would be uniformity of interpretation.

Senator HARTKE. The uniformity you look for, though, and the flexibility, and the question of predictability now occurs by virtue of the fact that each State has its own laws; and, therefore, the Supreme Court of each State ultimately makes a decision. If you are really looking for predictability and uniformity, would you not be better off to have one ultimate court? That would give you a predictability and uniformity which would be much more apt to come forward.

Mr. CROMPTON. I do not think it has occurred in 40 years under the Security and Exchange Act. I do not know why it would be likely under another statute.

Senator HARTKE. There are problems in the Securities and Exchange law; no question about that. But, I do not know many people who would like to go back to each individual State trying to provide the general overall regulation of the sale of securities, because most corporations that I know are fairly well-satisfied with the type of program that is administered by SEC.

Mr. CROMPTON. I did not mean to suggest that, Mr. Chairman. What I meant was there is no likelihood of a uniformity springing from a new chartering statute.

Senator HARTKE. Your argument is-and I suppose very persuasive-that the concept of Federal chartering is merely a procedural device by which to gain control of the corporations in order to achieve more substantive ends. I think that might be a fair conclusion. That may be true.

Mr. CROMPTON. Thank you, sir.

Senator HARTKE. But where corporations are engaged in bribery, illegitimate political crises, or an antitrust violation, there is usually an economic penalty associated with it. That ultimate penalty is paid by the shareholders. It will appear in the declining value of his stock or in the declining profits of that corporation. Do you not think that in such situations the shareholder ought to be able to somehow obtain some type of compensation for the economic damage that has been done to him?

Mr. CROMPTON. I think he should and I think he does. There are class-action and derivative-action remedies now available to shareholders, just for such things.

Senator HARTKE. Is that true in all the States?

Mr. CROMPTON. I cannot speak for all the States. It certainly is true in Delaware.

Senator HARTKE. Would it not be better if you had uniformity in that, and predictability in that field?

Mr. CROMPTON. I think there is already a very expansive Federal rule for such remedies under the Securities and Exchange Act. Senator HARTKE. Thank you, Mr. Crompton.

Mr. CROMPTON. Thank you, Mr. Chairman. [The attachment referred to follows:]

RESOURCE DOCUMENT ON Delaware CORPORATION LAW

TABLE OF CASES

Allaun v. Consolidated Oil, 147 A.256 (Del.Ch. 1929).

American Hardware Corp. v. Savage Arms Corp., 135 A.2d 725 (Del.Ch. 1957), aff'd 136 A.2d 690 (Del.Supr. 1957).

Armour, State ex rel. v. Gulf Sulphur Co., 233 A.2d 457 (Del.Super.) aff'd 231 A.2d 470 (Del.Supr. 1967).

Baron v. Allied Artists Pictures Corporation, 337 A.2d 653 (Del.Ch. 1975).
Barrett v. Denver Tramway Corp., 146 F.2d 701 (3rd Cir. 1944).

Bennett v. Bruil Petroleum Corp., 99 A.2d 236 (Del.Ch. 1953).

Bennett v. Propp, 187 A.2d 405 (Del.Supr. 1962).

Bodell v. General Gas & Electric Corp., 140 A.264 (Supr. Ct. 1927).

Bovay v. H. M. Byllesby & Co., 38 A.2d 808 (Del.Supr. 1944).

Bowen v. Imperial Theatres, Inc., 115 A.918 (Del.Ch. 1922).

Brophy v. Cities Service Co., 70 A.2d 5 (Del.Ch. 1949).

Brumley, State ex rel. v. Jessup & Moore, Paper Co., 77 A.16 (Del.Supr. 1910). Burr v. Burr Corporation, 291 A.2d 409 (Del.Ch. 1972).

Campbell v. Loew's Inc., 134 A.2d 852 (Ch. 1957).

Canada Southern Oils, Ltd. v. Manabi Exploration Co., 96 A.2d 810 (Del.Ch. 1953).

Carl M. Loeb, Rhoades & Co. v. Hilton Hotels Corp., 222 A.2d 789 (Del.Supr. 1966).

Cheff v. Mathes, 199 A.2d 548 (Del. Supr. 1964).

Chew v. Inverness Management Corp., 352 A.2d 426 (Del.Ch. 1976).

Chinetti v. Chinetti-Garthwaite Imports, Inc., C.A. 5025, (Del.Ch., filed March 10, 1976).

Cochran, State ex rel. v. Penn-Beaver Oil Co., 143 A.257 (Del.Supr. 1926).
Condec v. Lunkeheimer, 230 A.2d 769 (Del.Ch. 1967).

David J. Greene & Co. v. Dunhill International, Inc., 249 A.2d 427 (Del.Ch. 1968).

Diamond v. Oreamuno, 24 N.Y. 2d 494 (1969).

Dillon v. Berg, 326 F.Supp. 1214 (D.Del.) aff'd 453 F.2d 876 (3rd Cir. 1971). Dixon, State ex rel. v. Missouri-Kansas Pipe Line Co., 36 A.2d 29 (Del.Supr. 1944).

Dolese Bros. Co. v. Brown, 157 A.2d 784 (Del.Supr. 1960).

DPF Inc. v. Interstate Brands Corp., C.A. No. 4856 (Del.Ch. filed October 2, 1975).

E. L. Bruce Co. v. State ex rel. Gilbert, 144 A.2d 533 (Del.Supr. 1958).
Empire Southern Gas Co. v. Gray, 46 A.2d 741 (Del. Ch. 1948).

Essential Enterprises Corp. v. Automatic Steel Prod., 159 A.2d 288 (Del.Ch. 1960).

Farber. State ex rel. v. Seiberling Rubber Co., 168 A.2d 310 (Del.Supr. 1961).
Federal United Corporation v. Havender, 11 A. 2d 331 (Del. Supr. 1940).
Fontaine v. Altamil, C.A. 3165 (Del. Ch. filed January 8, 1970).
Foster, State ex rel. v. Standard Oil Co., 18 A. 2d 235 (Del. Supr. 1941).

General Time Corp. v. Talley Industries Inc., 240 A.2d 755 (Del. Supr. 1968).
Gerlach v. Gillam, 139 A.2d 591 (Del. Ch. 1958).

Getty Oil Co. v. Skelly Oil Co., 267 A.2d 883 (Del. Supr. 1970).

Gibbons v. Schenley Industries, Inc., 339 A.2d 460 (Del. Ch. 1975).

Gimbel v. Signal Cos. Inc., 316 A.2d 599 (Del. Ch.) aff'd 316 A.2d 619 (Del. Supr. 1974).

Gottlieb v. Hayden Chemical Corp., 90 A.2d 660 (Del. Supr. 1952).

Greyhound Corporation, The v. Heitner, C.A. No. 132, 1975 (Del. Supr., filed April 15, 1976).

Gulla, In re, 115 A. 317, (Del. Ch. 1921).

Guth v. Loft, Inc., 5 A.2d 503 (Del. Supr. 1939).

Henshaw v. American Cement Corp., 252 A.2d 124 (Del. Ch. 1969).

I. P. Griffin Holding Corp. v. Mediatrics, Inc., C.A. No. 4056 (Del. Ch. filed January 30, 1973).

Insuranshares Corp. v. Kirchner, 5 A.2d 519 (Del. Supr. 1939).

Investment Associates, Inc. v. Standard Power & Light Corp., 48 A. 2d 501 (Del. Ch. 1946), aff'd 51 A.2d 572 (Del. Supr. 1947).

Jackson, In re, 81 A. 992 (Del. Ch. 1911).

Johnston v. Greene, 121 A.2d 919 (Del. Supr. 1956).

Kaplan v. Centex Corporation, 284 A.2d 117 (Del. Ch. 1971).

Kaufman v. Schoenberg, 91 A.2d 786 (Del. Ch. 1952).

Kaufman v. Schoenberg, 154 F. Supp. 64 (D. Del. 1954).

Keenan v. Eshelman, 2 A.2d 904 (Del. Supr. 1938).

Keller v. Wilson & Co., 190 A. 115 (Del. Supr. 1936).

Kerbs v. California Eastern Airways, 90 A.2d. 652 (Del. Supr. 1952).

Kerkorian v. Western Air Lines, Inc., 253 A.2d 221 (Del. Ch.) aff'd 251 A.2d 240 (Del. Supr. 1969).

Kors v. Carey, 158 A.2d 136 (Del. Ch. 1969).

Lank v. Steiner, 224 A.2d 242 (Del. Supr. 1966).

Lynch v. Vickers Energy Corp., 351 A.2d 570 (Del.Ch. 1976).

Manacher v. Reynolds, 165 A.2d 741 (Del.Ch. 1960).

Mansfield Hardware Co. v. Johnson, 268 F.2d 317 (5th Cir.), cert. den. 361, U.S. 885 (1959).

Meyerson v. El Paso Natural Gas Co., 246 A.2d 789 (Del.Ch. 1967).

Mintz v. Bohen, 210 A.2d 509 (Del.Ch. 1965).

Mitchell v. Highland-Western Glass Co., 167 A.831 (Del.Ch. 1933).

Mite Corp. v. Heli-Coil Corp., 256 A.2d 885 (Del. Ch. 1969).

Nodana Petroleum Corp. v. State ex rel., Brennan, 123 A.2d 243 (Del. Supr. 1956).

Northwest Industries v. B. F. Goodrich, Co., 260 A.2d 428 (Del. Supr. 1969). Pennsylvania Mutual Fund, Inc., v. Todhunter International Inc., C.A. No. 4845 (Del. Ch. filed August 5, 1975), 1 Del. J. Corp. Law 229 (1976).

Petty v. Penntech Papers, Inc., 347 A.2d 140 (Del. Ch. 1975).
Poole v. N. V. Deli Maatschappij, 243 A.2d 67, 69 (Del. Supr. 1968).

Porges v. Vadsco Sales Corp., 32 A.2d 148 (Del. Ch. 1943).

Prickett v. American Steel and Pump Corporation, 251 A.2d 576 (Del. Ch. 1969). Raab v. Villager, A.2d (Del. Supr., 1976), C.A. Nos. 5, 56, 73, and 99,

1975 (Del. Supr., filed April 12, 1976).

Sack v. Cadence Industries, C.A. No. 4747 (Del. Ch. filed April 9, 1975).
Salt Dome Oil Corp. v. Schenk, 41 A.2d 583 (Del. Supr. 1945).

Saxe v. Brady, 184 A.2d 602 (Del. Ch. 1962).

Schnell v. Chris-Craft Industries Inc., 285 A.2d 437 (Del. Supr. 1971).

Seminole Oil & Gas Corp. In re, 150 A.2d 20 (Del. Ch. 1959),

Sinclair Oil Corp. v. Levien, 280 A.2d 717 (Del.Supr. 1971).

Steigman v. Beery, 203 A.2d 465 (Ch. 1964).

Sterling v. Mayflower Hotel Corp., 93 A.2d 107 (Del.Supr. 1952).

Tannetics, Inc. v. A. J. Industries, Inc. C.A. 4592 (Del.Ch. filed September 4, 1974).

Theile, State ex rel. v. Cities Service Co., 115 A. 773 (Del.Supr. 1922).

Tonopah United Water Co., In re, 139 A. 762 (Ch. 1927).

Topkis v. Delaware Hardware Co., 2 A.2d 114 (Del.Ch. 1938).

Trans World Airlines, Inc. v. State ex rel Porterie, 183 A.2d 174 (Del.Supr. 1962).

Tweedy, Browne & Knapp v. Cambridge Fund, Inc., 318 A.2d 635 (Del.Ch. 1974). Universal City Studios, Inc. v. Francis I. duPont & Co., 334 A.2d 216 (Del.Supr. 1975).

Warshaw v. Calhoun, 221 A.2d 487 (Del.Supr. 1966).

Weisman v. Western Pacific Industries Inc., C.A. No. 4833 (Del.Ch. filed September 2, 1975).

Western Airlines, Inc. v. Allegheny Airlines, Inc., 313 A.2d 145 (Del.Ch. 1973). Yasik v. Wachtel, 17 A.2d 309 (Del.Ch. 1941).

I. STOCKHOLDER CONTROL

A. INTRODUCTION

Stockholders control a Delaware corporation. Their control is brought to bear at regular and special stockholders meetings. They can also act instantly through written consents by holders of that percentage of stock necessary to perform the act in question.1

Managers can thus be changed in whole or in part either by the stable body of stockholders or, as after a tender offer, by a new group of stockholders who have bought out the old. Although these propositions may seem obvious, it seems desirable, as a basis, to set out the theme before going to the variations.

B. ANNUAL MEETING

To guarantee that the stockholders' franchise is honored, the directors, and therefore, management, must face the stockholders at least once a year. Efforts of management to avoid this confrontation have met with little success in Delaware. Annual meetings to elect directors are required by statute.' The courts are firm that postponement of this requirement will not be permitted. Vice Chancellor Brown recently wrote:

. . . the spirit of 8 Del.C. § 211 (c) indicates that where more than thirteen months have elapsed without a meeting of shareholders to elect directors and application is made by a shareholder for Court intervention because of this, the Court has a duty to make sure that such a meeting and election take place as promptly as possible, and normally this can only be guaranteed by the entry of an order fixing a definite date for the event to take place.3 Nor have the courts been charitable to a management which, without proper business reasons, would use the literal language of the statute to alter the meeting date, so as to rush competitors for control unprepared to an earlier meeting than they had reason to expect. Justice (now Chief Justice) Herrman roundly condemned the practice:

Management contends that it has complied strictly with the provisions of the new Delaware Corporation Law in changing the by-law date (for the annual meeting). The answer to that contention, of course, is that inequitable action does not become permissible simply because legally possible.* Delaware courts, on equitable grounds, hold dissidents to an annual meeting date of which they had been on notice for some time; and a delay in an annual meeting inadvertently, or at least not inequitably, brought about was not condemned since the meeting was promptly re-scheduled."

C. CONSENTS

Direct stockholder control at any time was legislated in 1967 through Section 228 (a) which allows a corporation to dispense altogether with an actual meeting of stockholders and permits them to act by written consent. This section, together with the provision for removal of directors without cause,' permits immediate and direct control by the majority of the stockholders, (followed by full disclosure to the entire body of shareholders), including, where appropriate, the ouster of management."

18 Del. C. §§ 211, 222, and 228 (a).

28 Del.C. § 211(b). Unless the necessary number of stockholders have consented in writing to the action pursuant to 8 Del.C. § 228 (a). Folk, Corporation Law Developments 1969, 56 Va. L. Rev. 755, 784 (1970).

3 Tweedy, Browne & Knapp v. Cambridge Fund, Inc., 318 A. 2d 635, 637 (Del. Ch. 1974). See also Prickett v. American Steel and Pump Corporation, 251 A. 2d 576 (Del. Ch. 1969); I. P. Griffin Holding Corp. v. Mediatrics, Inc., C. A. No. 4056, (Del. Ch., filed January 30, 1973): In re Jackson, 81 A. 992 (Del. Ch. 1911); In re Gulla, 115 A. 317 (Del. Ch. 1921). Schnell v. Chris-Craft Industries, Inc., 285 A. 2d 437, 439 (Sup. Ct. 1971). American Hardware Corp. v. Savage Arms Corp., 135 Á. 2d 725 (Del. Ch. 1957), aff'd, 136 A. 2d 690 (Del. Supr. 1957).

In re Tonopah United Water Co., 139 A. 762 (Ch. 1927) (an error in the notice for the proper date made the meeting of questionable validity, therefore, a later date was acceptable).

7S Del. C. § 141(k).

8 Professor Cary. Federalism and Corporate Law: Reflections Upon Delaware, 83 Yale L. J. 663, 669 (1974) [hereinafter cited as Cary. Federalism Article], considers Section 228, which grants direct control to the majority of shareholders, somehow anti-democratic because the procedure provides disclosure to the minority only after the fact. First, speed is often desirable. Second, the proxy rules and Delaware law require disclosure before the fact if consents are solicited. Third, Section 228 (c) requires full disclosure after the fact in every case. It is true that the consent procedure balances the interest of prompt action, when necessary votes are in hand, against a lost opportunity for a preliminary injunction if no solicitation is required. However, abuses are subject to correction by judicial review; see, e.g., Chew v. Inverness Management Corp., 352 A. 2d 426 (Del. Ch. 1976).