When it came to the corporate law landscape in North Dakota, think of the state as a clean, white dry-erase board.

At the top of the board would have been a simple, clear line that says "North Dakota Incorporation Law."

Under that would be another line connected to two little dots, representing North Dakota's two publicly traded corporations:Integrity Mutual Funds of Minot and Dakota Grower's Pasta.

Now compare that board to other states' incorporation laws and publicly traded corporations. Some, such as Vermont, would be almost as simple. Others, such as Delaware, would be riddled with intricately connected dots, webbed together with state incorporation laws and a nearly unerasable corporate law infrastructure.

But after North Dakota's 60th Legislative session, something changed on the state's board, potentially challenging the look of other state's corporate landscapes, and, quite possibly, the national face of corporate law.

North Dakota legislators passed the first corporate governance, "shareholder-friendly" law in the nation, which Gov. John Hoeven immediately signed into the state Century Code. Under the new law, Chapter 10-35 in the Century Code, companies that incorporate in North Dakota have the option of doing so under current state law or under the new, shareholder-friendly law.

It's being touted as the most progressive corporate infrastructure law in the nation, pulling together nearly all issues on shareholder activists' wish lists:majority voting, further limiting director term limits, separating the role of chairman and CEO, allowing votes on compensation reports and changing plurality voting to majority voting on directors and amending proxy access, among other items.

Separately, these measures are not necessarily new to corporate structure. Indeed, publicly traded corporations, the Securities Exchange Commission and federal and state laws have reacted to corporate scandals such as Enron and Tyco International. In 2002, a federal law called Sarbanes-Oxley Act was passed in an attempt to oversee corporate board accountability and, perhaps most notably, creating the Public Company Accounting Oversight Board.

Since then, some companies have responded accordingly, reacting to their investors and breaking down management-heavy corporate structures to incorporate some aspects of shareholder-friendly ideals.

But North Dakota's new, optional law, is the first time nearly all ideals of corporate governance have been pulled together under one complete structure.

A clean slate

Why North Dakota?

A state with only two publicly traded corporations is hard to swallow as the launching point for a highly contested, progressive shareholder-friendly corporate law structure, opponents say.

But that point alone is exactly why the state was chosen, said bill drafter William Clark, a partner in the law firm Drinker, Biddle and Reath, LLSC, in Pennysylvania.

Clark is a member of the corporate laws committee of the business section of the American Law Association, a group of lawyers in charge of drafting changes in business models.He was author of the Pennysylvania Business Corporation Law of 1988 and the Pennsylvania Revised Uniform Limited Partnership Act, among other things.

Again, in reaction to activist shareholders cries for corporate reforms, he drafted a complete corporate governance structure and began researching states for one that seemed primed for such a change.

North Dakota presented to him and others a glaringly clear choice. A clean slate, he said.

In 2006, the residents of the state had finally voted to strike a provision in state law which made it unattractive for any publicly traded company to incorporate in North Dakota, said Secretary of State Al Jaeger.

That provision, which had to do with the way votes could be cast for the directors of a company, allowed a minority owner to have more than a majority say in the operation or election of directors to a company. In essence, the minorty controlled the company, not the people who owned most of the stock.

"Because of that, publicly traded companies did not incorporate here,"Jaeger said.

The provision was struck in 2006, and North Dakota had a fresh start for attracting businesses to incorporate in the state.

In 2005, while Jaeger and lawmakers were struggling over the proposed change, Clark, waiting for North Dakota's law to change, took the corporate governance draft to Vermont, which has five publicly traded companies.

It failed in that state, after staunch opposition from the state's largest publicly traded corporation. Clark said the failure was due in part to confusing language, which may not have made clear that the law was optional.

"It was not quite clearly so optional,"Clark said. "Existing companies were grandfathered out, and were able to opt in."

It was right at this time, however, that North Dakota's incorporation laws had changed.

"Because we had a clean slate, this was the first thing to come along after that,"said Joel Gilbertson, who lobbied for the bill.

Clark contacted William Guy, a lawyer at Vogel Law Firm in Fargo, who helped him draft the North Dakota version of the law. Along with Guy came lobbyist Gilbertson, who works at Vogel Law Firm in Bismarck. Then came Bill Sorenson, former mayor of Bismarck and supporter of corporate governance.

The group, Clark, Sorenson, Gilbertson and Guy, formed the North Dakota Corporate Governance Council, and Sorenson began quietly working his way through the Legislature, winning support on nearly every level.

But opposition was there, in the form of Integrity Mutual and Dave MacIver, president of the Greater North Dakota Chamber of Commerce. They said the law opened up the state for corporate raiders, and wholeheartedly objected to the law replacing existing corporate structure.

However, once it became apparent that it would not apply to the state's two publicly traded companies, the objections by Integrity Mutual fell to the wayside.

"It's optional,"said Gilbertson. "We were very careful in drafting it to make it clear it's not dependent on the other corporate (law). It's all about options."

Integrity Mutual CEO Mark Anderson would not comment on the new law, but former CEOBob Walstad said the company decided to step aside after realizing it would not apply to them.

"We took a look at the legislation for the so-called corporate governance alw, and decided to stay put and not take advantage of the new legislation."

Other objections came out of curiousity and concern over something seemingly alien.

"I actually spoke to it,"said Sen. Tracy Potter, D-Bismarck. "You've got this 26-page bill here; we just listened to the explanation from Sen. Nething, and yet, I'm pretty sure that everybody in the chamber is shaking their head going, 'what does this really mean?'"

He said he urged the Senate to vote against it on "blind, unreasoning fear."

"I wasn't really sure why we were doing this,"Potter said. "Yes, I'm in favor of (shareholder rights). I believe in democracy and shareholder rights. But I didn't see what prevents (corporations) from doing that today, nor why we need this."

Sorenson said that he'd tried incorporating his company in the state, but was constantly told that it was easier and better for credibility if he incorporated his company in Delaware.

"We found out how important it was for people to incorporate in Delaware,"Sorenson said.

That state has the legal infrastructure, but has a more management-friendly approach, Gilbertson said. North Dakota has placed itself in a potentially competitive stance to Delaware, offering a corporate structure that Delaware corporation shareholders may start pressing managment for.

A move to North Dakota has its advantages, said both Clark and Jaeger. Fees, although still more expensive than other states, are half the costs of Delaware's.

And the secretary of state's office has what North Dakota service local companies have some to expect, Jaeger said.

"To get expedited service in Delaware, it's $1,000," Jaeger said. "If you come into our office today with all the paperwork, it can be handled on the spot. We don't charge any extra for it."

But Delaware has an unprecedented, existing structure for incorporation, down to court decisions and legal expertise. Jaeger and Clark counter that by stouting North Dakota's differences.

"People say that Delaware could have (corporate governance). Corporations themselves could do some of these things. That might all be true, but the fact is, it hasn't happened,"Jaeger said.

Clark said he doubts Delaware will react, saying the state always has been most responsive to corporate managment.

"Delaware is in for a rude surprise,"Clark said.

hether or not companies come to North Dakota to incorporate, supporters agree the move was a bold one, signaling to the nation that North Dakota recognizes shareholders' wants for change.

"We have, regardless of whether we bring in a bunch of corporations to North Dakota, made our mark on the American economy," Gilbertson said, adding that most European companies already have such structures in place.

The next step is to start selling it, Gilbertson said. Eventually, the new option could bring in more dollars to the state.

Franchise fees are a maximum of $80,000 a year in the state under this option, Jaeger said. In Delaware, the fees are $160,000 a year. Jaeger pointed out that if just 10 companies incorporate in Delaware, that's $1.6 million per biennium income to the state.

"I think that is pretty significant,"Jaeger said.

But Gilbertson warned the changes, if they do come, won't be quick. He doesn't anticipate seeing a lot of movement until possibly next session.

At least companies now have the option. Whether or not more dots are added to the North Dakota's publicly traded corporate landscape, the state has shown its willingness to be progressive, competitive and altogether sensitive to corporate investors, supporters say.

(Reach reporter Crystal R. Reid at crystal.reid@; bismarcktribune.com or at 250-8261.)