Delaware - Law Firms A Senior Corporate Practitioner Looks At The Leadership Role Of The Delaware Judiciary

Monday, November 1, 2004 - 00:00

Editor: Would you tell us about your professional background?

Sparks: I graduated from Yale in 1966. Following service with the Coast Guard, I attended Penn Law School, from which I graduated in 1973. Upon graduation from law school I jointed Morris Nichols and was fortunate to be mentored by Sam Arsht, who was one of the leading corporate attorneys of the day. Under his guidance, I developed a corporate practice that included both counseling and litigation. I was able to participate in some very significant cases during my early years of practice, and once I became a partner in 1979 I became involved in a number of corporate governance leadership positions, both in Delaware and elsewhere. That included co-authoring a book on Delaware corporate law, serving as chair of the Delaware Corporation Law Council, serving on the Committee of Corporate Laws of the ABA, which is charged with keeping the Model Act up to date, and taking a leadership role in a number of continuing legal education national institutes.

Editor: The naming of a new Chief Justice of Delaware is a major event. How does the bar participate in that process?

Sparks: There is a judicial nominating committee which reaches out to senior members of the bar. In the case of the Delaware Supreme Court or the Court of Chancery, the committee will sound out the foremost practitioners, on a confidential basis of course, on particular candidates. Although I have been approached by committee members for my assessment of candidates, I have not been a member of the committee, so I cannot comment on their deliberations. My general observation is that the process is both painstaking and very thoughtful and, coupled with Delaware's commitment to a political balance on the bench, has resulted in a remarkable string of appointments over the years to both the Supreme Court and the Court of Chancery. It is a process that has produced Norm Veasey and Myron Steele, so it very obviously works.

Editor: Are there other ways in which the bar participates in the way corporations are treated in the courts?

Sparks: The bar plays a significant role in the amendments to corporate laws. For years, there has been a very strong working relationship between the Delaware Legislature, the administration - whether Democratic or Republican - and the Council of the Corporation Law Section of the Delaware Bar Association. Members of the latter group are elected by their peers and take their work very seriously. Beginning in September, the group - which consists of very experienced corporate attorneys - identifies areas of potential change and establishes task forces to deal with them. By the following April a package of legislative proposals has been developed.

Editor: You mentioned Norm Veasey. How would you characterize his legacy?

Sparks: I think there are two things that stand out. First, he set an outstanding tone in the area of professional ethics in Delaware, which coincided with his work in this area for the ABA. In addition, he served as a strong spokesman for the cause of corporate governance reform during a turbulent time and did so in a way that separated best practices from legal mandate. That is, he expressed very clear views of what good corporate governance consists of, beyond any minimal standards established by law, and in so doing made a very strong contribution in the ongoing discussion..

Editor: You've also argued many cases before the new Chief Justice. Can you give us your impression of him?

Sparks: Myron Steele is going to be an excellent Chief Justice. He is truly engaged in the corporate law arena, and I think what makes him a strong jurist is a willingness to learn as well as teach. I think he understands that as the world changes - and the corporate world in which we practice is certainly undergoing very great changes just now - it is important to understand how it is changing and where Delaware fits into the picture. He is a strong advocate for the way in which we do things here, and I see in him a firm hand holding to a very steady course during a period of some turbulence in the area of corporate governance.

Editor: The corporate scandals have generated considerable turbulence. How do you see Delaware meeting the challenge to remain the jurisdiction of choice in the corporate governance area?

Sparks: I see Delaware developing its jurisprudence in this area in an evolutionary way, just as it has over the 30 years I have been involved. Delaware exerts its leadership in this area as a consequence of the legal foundation already in place, something that permits it to steer a middle course and avoid extremes. One of the current concerns has to do with executive compensation, and the discussion has placed a focus on the role of the governing board's compensation committee. The Delaware courts will weigh in on that discussion, and I think that over time some decisions dealing with the role of process in evaluating the work of compensation committees will be forthcoming. The question of what constitutes independence in a director is going to continue to evolve in the judicial discussion in Delaware. Whether more shareholder access to information is a good thing - or not a good thing - is a matter of some concern, and I think how that question will fare in the Delaware court system is going to be influenced by whether the institutional investor community organizes itself to address the question. Irrespective of how these very important issues are framed, the Delaware Supreme Court and the Court of Chancery are going to be at the center of the discussion.

Editor: Can you comment on the evolving Delaware jurisprudence concerning the responsibilities of corporate directors?

Sparks: This is an issue that has come to the fore in a number of Delaware decisions in recent years, most notably the Disney case. Since I am counsel of record for some of the defendants on that case, I am not going to be able to say much about that particular issue or about the case. Speaking generally, however, I will say that the Delaware courts are in the process, in a number of cases, of defining the term good faith as it bears upon statutes dealing with both director indemnification and protection against monetary liability. In addition, the use to which books and records are put is something being analyzed with some care by the courts. At some point in the near future we will have clear guidance from the courts on these issues and - for at least a time - they will be settled. Then the cycle will begin again as new realities force a reassessment of the issues. That is the way the process works. This is a dynamic and flexible process, and, while things may move a little more slowly than in a Model Act state, the end product encompasses nuances that a statutory regime simply misses. Needless to say, a mature case law environment provides a more stable framework within which to address these issues than a one-dimensional statutory framework.

Editor: The Court of Chancery's jurisdiction has been expanded to include mediation of business disputes and a broad range of technology cases. Do you think this will make Delaware Courts more attractive to corporations?

Sparks: It cannot hurt, although I think the jury is still out on the extent to which these innovations will be taken advantage of by our corporate customers. They do reflect Delaware's desire to provide the best service possible.

Editor: Vice Chancellor Parsons, your former partner, played a role in implementing several of these innovations.

Sparks: Don Parsons was a driving force as a litigator in the intellectual property area, and from what I have seen of his opinions, he is eminently suited to be on the bench. Although his background is not in corporate law, he brings a great deal of intellectual vigor, technological expertise and energy to the court. Leo Strine is another member of the Court of Chancery who has brought a great deal of energy and new ideas to the institution. The presence of such people on the court is just about a guarantee that Delaware's leadership role is anything but imperiled.

Editor: What about the future? I gather you are sanguine about the Delaware courts preserving its competitive edge in the corporate law arena.

Sparks: For starters, let me say something about why the Delaware courts are where they are in the first place. The Court of Chancery has been, and continues to be, quite unique. A number of other states have attempted to replicate it with special business courts, but these do not constitute the gateway to the resolution of corporate disputes that Delaware does. Why? Well, we start with a tradition of drawing onto the bench a group of highly qualified corporate lawyers or lawyers whose intellectual abilities are so elevated that they are quick to grasp both corporate law and the Chancery practice. These people only add to the respect that the judiciary has long enjoyed. Then we have a state that is well aware of the need to support its court system. This offers a huge advantage vis-a-vis other jurisdictions, and it all comes together in a jurisprudence that, I think, is characterized by lengthy, carefully drafted and thoughtful opinions that not only analyze the facts and the law but do so in a way that permits the law to develop. This extraordinary written tradition represents the Delaware advantage.

In the highly politicized atmosphere that followed on the heels of Enron and the other corporate scandals, a few commentators talked about the failure of state corporate law. There was a question as to whether the federal government ought to assume legal oversight with respect to the fiduciary duties of directors and other corporate insiders from the states. I think this idea is now fading. The balance as between the federal and state governments in this area is not going to change in any significant way. Delaware has certainly passed any conceivable test for objective honesty, and its commitment to a middle path among the various competing corporate constituencies offers a degree of predictability that is not available in other jurisdictions. The flexibility and stability - and these are not contradictions, but complementary aspects of the system - of Delaware's judiciary indicate that its leadership is not going to be challenged, either by the federal government or by any other state's system, any time soon.

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