Fresh off their ennobling pay-raise performance, Pennsylvania lawgivers are restoring confidence in the adage that "you ain't seen nothing yet."

The Pennsylvania General Assembly this month approved legislation on behalf of Philadelphia's Sovereign Bancorp, the nation's 18th-largest bank with assets of $64 billion. The law smooths the way for Sovereign to acquire Brooklyn, N.Y.-based Independence Community Bank with the help of Grupo Santander. Sovereign agreed to let the Spanish bank purchase an 19.8 percent stake in Sovereign for $2.4 billion and use the proceeds to finance its $3.6 billion acquisition of Independence.

This triangle has a twist: Sovereign's board decided shareholders should not have the right to vote on it. The legislature's vote, and Gov. Ed Rendell's signature, are insurance Sovereign's directors get their way.

Who are our elected fiduciaries throwing in with? Mr. Rendell, who provided his signature reluctantly, hails Sovereign as "an exemplary Pennsylvania institution" and one of the commonwealth's leading corporate citizens.

Contrast Mr. Rendell's assessment with that of some large shareholders, who accuse Sovereign of shoddy corporate governance. Among their grievances: excessive director compensation in 2004 (Sovereign says it has since been reduced) and loans and other transactions with independent directors.

The Corporate Library, a corporate governance research firm, recently downgraded Sovereign's overall board effectiveness rating to "F.'' Franklin Mutual Advisers, a San Mateo, Calif., investor that owns more than 17 million Sovereign shares, says Sovereign's three-way transaction occurs against a backdrop of what it terms "the board's appalling history of conflicts of interest."

"These transactions rank with the worst examples of management and board entrenchment and disdain for shareholder rights that we have witnessed," Franklin CEO Peter A. Langerman said in a Nov. 3 letter to Sovereign's board.

The central issue is whether Sovereign's shareholders should have a voice about selling a huge chunk of their company, which would dilute their interest. If dilution is a hard concept to grasp, think of Sovereign as a cake. Do you carve it up among current shareholders or do you slice off a 20 percent piece for Santander and leave the rest to Sovereign's existing shareholders?

The analogy makes it easy to understand why Franklin and other large institutional investors, including the $29 billion Pennsylvania State Employees' Retirement System, wanted a shareholder vote. Corporate governance advocates agree.

"Given the dilutive impact of this action, shareholders should have the right to vote," says the University of Delaware's Charles Elson.

To force a vote, shareholders petitioned the New York Stock Exchange over an esoteric issue: the status of Sovereign's treasury shares -- previously issued stock owned by the company. Santander will acquire treasury shares as well as newly issued shares from Sovereign.

NYSE regulations allow companies to exclude treasury shares in determining whether the sale of a large block of stock should be put to a shareholder vote. Franklin, the state pension fund and others asked the NYSE to close the loophole. The exchange sided with Sovereign.

Relational Investors, a San Diego money manager that owns 8.4 percent of Sovereign's shares, then tried another tactic. Relational had been threatening to run its own slate of directors at Sovereign before the Santander alliance was announced. But the alliance with the Spanish bank threw a wrinkle into Relational's plans, primarily because Santander presumably would be allied with Sovereign's directors, making it harder for Relational's nominees to win. Sovereign even went so far as to change its bylaws to delay its shareholder meeting until after Santander purchases its shares.

So Relational sued Sovereign over the same issue the NYSE considered, the treatment of treasury shares. Relational wants them included, which it believes would trigger a state law requiring Santander to purchase all of Sovereign's shares. It also wants the court to rule Sovereign violated state law by delaying the shareholder meeting. A ruling is expected next month.

This is where the General Assembly entered the picture. At Sovereign's request, it approved a bill that excludes treasury shares from the calculation. To thwart Relational's attempts to oust directors, lawgivers approved a provision allowing companies to remove directors without cause only if explicit language in their corporate charter permits it. Critics say the legislation makes it harder to remove directors who deserve to be removed.

Moreover, according to accounts in Harrisburg's The Patriot News, lawmakers overlooked procedural rules in enacting the special interest legislation.

The new law has broad implications for how other Pennsylvania companies treat their shareholders. That gave Mr. Rendell pause, but not enough to prevent him from complying with Sovereign's wishes.

The bank's reliance on Harrisburg must strike some critics as hypocritical. In a Jan. 27 letter to shareholders, Sovereign Chairman Jay Sidhu accused Relational of taking "the playbook from the most negative of political campaigns" by hiring Republican Party strategist and lobbyist Thomas Synhorst, who Mr. Sidhu termed "a well-known political operative."

It would appear Mr. Sidhu is on a first-name basis with a few political operatives himself and has good reason to be indebted to them.

It would also appear that when it comes to governance, Harrisburg isn't run much differently than Sovereign.