For years now, institutional investors have been fighting big corporations for more say over salaries, board appointments and other issues long decided by management. Thanks to a new law, they now have a chance to gain such leverage. There's a catch, though: They have to get the companies to incorporate in North Dakota.

That state is home to only two publicly traded firms, but its very lack of big-time corporate activity made it attractive for reform- minded shareholders searching for a friendly venue to try a new approach. "We were kind of a clean slate," says Secretary of State Al Jaeger. "We're not encumbered with a lot of preconceived notions about corporate governance."

The state's new incorporation law, which takes effect this month, gives shareholders the right to sign off every year on executive pay, and makes it easier for them to vote against management's positions on company policies and nominees for director slots. "There aren't too many things on the shareholders' wish list that don't appear in this law," says Patrick McGurn, of Institutional Shareholders Services.

Executives of one of North Dakota's incorporated companies, Integrity Mutual, dropped their objections after finding out that the law would not apply to them. The new law, in fact, will be optional for everybody: Businesses still have the right to incorporate under the old set of regulations. But sponsors of the law hope that some companies will embrace the new rules to signal friendly intentions to big institutional investors. "Our goal is to improve the responsiveness of management to the owners of the business, which are the shareholders," says state Representative Larry Klemin.

There's a bit of a chicken-and-egg problem, though. Boards, not shareholders, decide where to incorporate. It's doubtful that management at many companies will leap at the chance to cede so much of its power. And the idea that this law will spur other states to act may be far-fetched, too. An attempt to move similar legislation in Vermont failed in 2005 after the biggest of its five publicly traded companies objected.

But the North Dakota law does give corporations and their investors around the country--including major players such as pension funds--a new set of ground rules for resolving disputes. There may be some indication of how significant this is during the annual meeting season next spring, when presumably some shareholders will ask their boards to consider incorporating in North Dakota. Some law firms in the state are already spreading the word that their services are available to any companies that decide to come. Still, a massive influx of Fortune 500 companies to Bismarck or Fargo seems a rather doubtful proposition, to say the least. State officials readily concede that.

"We don't have any thoughts that we're going to capture hundreds of companies," says Jaeger. But there's certainly reason to expect that the movement of even a few might put pressure on other companies and possibly other states to adopt new rules that help out shareholders.