Shareholder litigation should be held in state of incorporation, law professor advises

W illiam A. Franke, a Stanford law professor, recently gave the annual Widener University School of Law Pileggi lecture in which he advised public corporations to institute provisions that require the advanced selection of shareholder litigation forums.

Entrepreneurs who start a corporation that eventually goes public could eventually have two options at their disposal. They can either have the option to elect or be required to hold shareholder litigation in the state of incorporation if the policy suggested by Franke is adopted, Steven Davidoff writes in the New York Times. The recommended charter would apply only to state law claims involving issues such as breaches if fiduciary duty, not federal claims.

"This would have important implications since there is at least some evidence that plaintiffs have been drifting away from bringing suit in Delaware because of fears of adverse judgments," writes Davidoff. "These provisions would be a response to claims that these shareholder plaintiffs are forum-shopping, selecting the jurisdiction most favorable to their suit."

Delaware is the state with the highest number of corporations. Davidoff thinks that one way to gauge whether or not the provision is an appropriate form of corporate governance is to allow the shareholders to vote.