As previously discussed in our Corporate Governance Insight on March 20, 2025, certain companies and investors continue to reassess whether to incorporate or form in the state of Delaware or move to another state. A recent study by Stanford's Professor of Law and Business, Joseph Grundfest, contributes to the discussion by analyzing legal fees awarded in corporate shareholder lawsuits in Delaware courts with federal courts.
Why it matters: The Grundfest study's findings come as some companies and investors consider reincorporating in other states like Texas or Nevada, where they believe courts may be less plaintiff-friendly and legal costs in shareholder suits may be more predictable and lower. Boards, general counsel and other senior executives, investors and their advisors should be aware of the ongoing developments and considerations.
Key Findings:
- Plaintiff's Lawyers Fees: The Grundfest study found that, overall, fee multipliers applied by Delaware courts tend to be higher and more frequently applied than their equivalents in federal courts resulting in higher fees for plaintiffs' lawyers.
- Investor Concerns: Recent news reports highlight the concern some investors have with the study's findings, focusing on the potential to encourage unnecessary litigation and impact shareholder value.
What's Next: The Grundfest study is another factor for corporate stakeholders, advisors, and policymakers to consider when deciding where to incorporate. It also is sparking discussions in Delaware about potential reforms.
Read the Fortune.com article here.
Read the New York Times article here.
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