While much of the DExit debate has focused on differences in the way director and controlling shareholder actions will be evaluated under the legal standards of different states, investor relations concerns also need to be top of mind for companies considering reincorporation. A recent FTI memo discusses some of the non-legal considerations associated with DExit proposals. This excerpt highlights factors companies should consider during the evaluation stage for a possible move from Delaware:

– Candidly Assess Current Relationship With Shareholders. Requesting shareholder approval to reincorporate does not happen in a vacuum. History matters. When shareholders are voting, they will be assessing more than just the merit of the proposal. They will be assessing the history of engagement with the Company, the Company’s current shareholder rights profile, the Board’s rapport with shareholders at large, and, if applicable, any response to previous shareholder dissent. Shareholders need to trust the Board in order to support such a proposal, and trust is established well before the filing of a preliminary proxy.

– Start Early. Companies should thoroughly assess the merit of reincorporation, including to which jurisdictions, alongside legal counsel. Shareholders will want to see that the Board took the appropriate steps to determine this was in the best interest of shareholders, and this process was not rushed. Further, reincorporation requires the filing of a preliminary proxy and a deliberate campaign-like approach to secure shareholder support (more on that below), which underscore the importance of starting early.

– Avoid Surprises (for your shareholders and for you).

Engage Shareholders Early. Companies should have regular dialogue with their top investors on governance matters, establishing a relationship with them before requesting their support on a proposal like reincorporation. In these engagements, companies can discuss the topic of reincorporation at a high level with their top shareholders and seek their views on the topic.

Conduct a Voting Outlook. Prior to requesting shareholder approval to reincorporate, a Company should have a rough idea of which shareholders are generally supportive, unsupportive, or “on the fence” when it comes to reincorporation proposals. Analysis can inform a likely vote outcome and can identify what levers the company has available to increase the likelihood of shareholder support.

– Monitor the Landscape. The legal frameworks that may make reincorporation more or less appealing can change over time. We expect shareholders’ views will also evolve. Boards considering reincorporating should closely monitor these developments.

The memo also includes recommendations to boards and management teams that have gone beyond the evaluation stage and are seeking shareholder approval of a reincorporation proposal. Among other things, FTI stresses the importance of a cohesive campaign to secure shareholder support, the need for a compelling company-specific rationale behind reincorporating that goes beyond “less litigation,” and the extent to which reincorporation may be perceived to put shareholder rights at risk.

– John Jenkins