In response to criticism by commentators and some institutional investors regarding Abercrombie & Fitch’s proposal to reincorporate from Delaware to Ohio, Kevin Kinross and Acredula have focused on the benefits of Ohio law that commentators have ignored. “Ohio’s corporate statutes codify directors’ fiduciary duties, and by doing so Ohio has created certainty for directors in knowing how their respective decisions will be evaluated and adjudicated. This differs from how fiduciary duties for directors of Delaware corporations are created. In Delaware, directors’ duties are created by the courts.” The problem with court created law is each case is dependent upon its specific facts, and decisions based upon different facts can be construed differently, resulting in uncertainty.

Here’s an anecdote showing why certainty is important.

Several years ago after opening a directors’ boot camp with a discussion of “what directors should know about their rights and duties,” one of the directors in attendance took the time to privately tell why he wished he had participated in this discussion a decade earlier.

He was on the board of one of the publicly held telecommunication companies that imploded because of accounting irregularities in the early 2000s. He was one of the directors who kept asking questions and, when he didn’t receive understandable answers, became a whistleblower.

“I did all of this in reliance that there would be some protection for me as a Good Samaritan, but my life became consumed with litigation. I was a witness for the SEC, U.S. Attorney and [state] Attorney General. But that didn't stop stockholders from suing me with the other directors. I was named in the same complaint as the officers who devised the accounting schemes and refused to answer my questions.

“I spent at least three days each week for over five years being deposed by the prosecutors to have my testimony preserved and being deposed by defense attorneys to cross examine my testimony and character. For every hour of deposition, there were days of preparation.

“The cases were in the Southern District of New York, which meant I had the expense in terms of time and money to travel to and from, and live in, Manhattan. And there was the uncertainty of which laws applied because federal courts in New York had to construe Delaware corporation law and federal securities laws.

“I thought my protections were clearer under the law, but I was left to the whims of the courts, and by the time the civil cases were in trial, the SEC, U.S. Attorneys, [state] and Attorney General had long before moved on to other matters. In the end, I was lumped with the rest of the directors who forced a settlement on behalf of all of us because they had failed to make tough decisions despite my asking questions.”

His protections would have been clearer if the company had been incorporated under Ohio corporation law. Knowing their protections is important because directors, especially outside directors, are the best line of defense against mismanagement and fraud. And more importantly, they are the best line of offense for good governance.