Maintaining Uniformity In Our Corporation Laws: The Unsung Labor Of The Corporate Laws Committee Of The American Bar Association’s Business Law Section

Thursday, June 21, 2012 - 14:55

It is appropriate in this issue, which includes a focus on pro bono activities of all kinds, to cast a spotlight on the work of Corporate Laws Committee of the American Bar Association’s Business Law Section, which quietly and effectively helps shape the backdrop for the governance and other activities of U.S. corporations, namely the nation’s corporate laws. We discussed the subject with A. Gilchrist Sparks III, chair of the Committee and of counsel to Morris, Nichols, Arsht & Tunnell LLP.

 Gil described the mission of the Committee as that of monitoring and, when appropriate, amending the Model Business Corporation Act and generating position papers when it appears that a matter of corporate law would benefit from the insights that the Committee can provide. When asked about the characteristics sought in selecting members of the Committee, he said, “The goal overall is to bring together a rich mix of people to produce the best model act going forward that we can. The Committee practices diversity in the broadest sense; diversity as to gender, race, geography, points of view and as to the mix of practicing attorneys and academics.”

Gil mentioned that the Committee’s reporters are Mike Dooley of the University of Virginia Law School, who is head reporter, and Larry Hamermesh of Widener University Law School of Law, associate reporter. He said their function is to make sure that the work product of the Committee accurately finds its way into the paperback edition of the model act and to maintain the Model Business Corporation Act Annotated, a four-volume, loose-leaf-supplemented publication that not only contains the model act and its official comment but also case references and the like.

When asked about the number of many states that have adopted the model act, Gil responded that the number he likes to use is between 32 and 34, and the reason it’s not precise is that some states have adopted the model act in its entirety; some states have adopted earlier versions of the model act, and in some cases only amended certain portions; still other states have a hybrid where certain portions of the model act have been adopted, and certain areas are covered by legislation that is not model-act related.

Gil said that it is important to have a uniform business corporation act in as many states as possible and that there are two basic models: the Delaware General Corporation Law, which some states use as a model, and the Model Business Corporation Act.

He mentioned that there’s a benefit to having uniformity in what is taught in law schools because their students need to have some core understanding, no matter where they end up practicing. More generally, if you have basic core provisions that cross a broad spectrum of states, judges have a greater body of precedent to refer to. He commented, “It may not be binding if it’s from another state – but it’s informative.”

Gil emphasized that uniformity also serves as a guide to state legislators considering the adoption of a new corporation law, stating, “It’s a daunting task to do it from scratch. Most state legislatures, with so many matters before them, don’t have the time to do that, and, for that matter, the lawyer groups that traditionally assist those legislatures need some starting point.” He continued, “The Committee takes great pride in playing a role in the effort to have a model business corporation law act across the country in a system where we do not have a national corporation law, but have, in effect, a national model.”

He mentioned that the Committee has an active liaison program, with a leading corporate lawyer in each state who coordinates with the Committee. It also has a standing committee that stands ready to assist any state engaged in a revision process to make its job easier, and that at any given time there generally seems to be three or four states engaged in that process.

Gil said, “The Committee also actively monitors and gets reports from its members on major judicial decisions construing the model act’s provisions. If it thinks a decision is wrong, it will look at the appropriate provision of the model act to see if it was the product of the model act not being clear enough, or if it was something that was not covered but should have been. From time to time, it amends the model act to deal with such issues.”  

He commented that the Committee has a standing committee on the effect of federal initiatives on state law generally, and, if what’s happening at the federal level impacts the model act, it considers whether the Committee should be doing anything to adjust in an appropriate way. He mentioned, “We try to deal with the broader concern about federal encroachment by making sure that we keep the model act up to date and do not inadvertently create a void that might invite Congress or perhaps the SEC or another federal regulator to rush in to fill it.