ANNAPOLIS, JAN. 26 -- A key House committee unanimously approved changes today in Maryland liability law that would allow corporations to insulate their officers and directors from some shareholder lawsuits.
The measure, which Gov. William Donald Schaefer has said is his top economic development priority in the 90-day legislative session, is a diluted version of last year's administration bill that created political turmoil before going down to defeat.
While the bill was broadened somewhat this year to include officers, significant changes were made to protect stockholders and third parties who might have grounds to sue corporate officials.
During a news conference today, Schaefer expressed satisfaction at the committee vote, and his legislative architect, Lt. Gov. Melvin A. Steinberg, said he was "very optimistic" that the bill would pass both houses of the General Assembly. It was the House Judiciary Committee, the same committee that acted today, that killed the bill after bitter debate last year.
"They made a decent bill out of it," said Del. Richard A. Palumbo (D-Suitland), a committee member who opposed the bill last year.
Said Del. Joseph F. Vallario Jr. (D-Suitland), another former opponent: "It just seemed this year the bill was very well greased . . . . It's the trend of the country -- if you don't pass this you're going to lose some corporate business."
One committee member, Del. Gilbert Genn (D-Bethesda), a leading opponent last year, abstained from today's vote.
Specifically, the bill would allow stockholders to vote on whether to protect officers and directors from having to pay monetary damages for negligence -- except in cases where there has been "active and deliberate dishonesty" or "receipt of an improper personal benefit."
Proponents of the bill, including the Chamber of Commerce and other business groups, have contended that it is a needed incentive to bring corporations to the state and to deter Maryland businesses from incorporating elsewhere.
Citing the large number of recent shareholder suits resulting from a national explosion of mergers and acquisitions, proponents argue that companies are being driven to incorporate out of state so they can get cheaper insurance for their officers and directors.
Schaefer and others who favor the bill have acknowledged, however, that the value in changing the law is mostly the symbolic boost it would give the state's business climate. The incorporation of a company in a particular state does not mean the company will move its offices there or even do business there. States reap modest revenue in the form of franchise taxes from companies that incorporate within their borders.
Schaefer aides have said the bill is needed if Maryland is to compete with Virginia, Pennsylvania, Delaware and the other 32 states that have in some way modified their liability laws for corporate officials.
The bill approved in committee today differs significantly from last year's because the new version requires a vote by stockholders to approve any change in the company's liability standards. The bill last year would have insulated corporate directors from some lawsuits automatically.
In addition, the bill this year applies only to suits filed by shareholders or by the corporation, not to suits filed by third parties as last year's bill did. This year's bill specifically excludes from the change directors and officers of banks and savings and loans who will remain subject to suit by stockholders.
The bill, presented as an emergency measure for prompt enactment, is expected to be voted upon in the Senate Judicial Proceedings Committee next week. Sen. Walter M. Baker (D-Eastern Shore), chairman of the committee, said he expects the bill to pass there, as it did last year.