Perhaps the most fundamental expectation of public company investors is the expectation of investing in a company run by a board of directors – a board elected by stockholders and charged with managing the corporation on behalf of all stockholders. Delaware seems primed to upset that expectation.
A proposed amendment to Section 122 of the Delaware General Corporate Law would allow boards to delegate out (to a greater or lesser extent) their most essential function – that of using their unfettered, independent discretion, filtering and balancing diverse stockholder voices and interests, to steer management in the direction most beneficial to stockholders as a whole. The proposed amendment would allow the board – without subjecting its decision to the rigors of a stockholder vote – to grant to third parties very significant governance rights, including veto rights, board seats and control of board committees in exchange for “such minimum consideration as determined by the board of directors. ”These third parties will not be constrained by fiduciary duties in exercising any such veto rights, and it can be expected that their designees for board and committee seats will in many cases be “dual fiduciaries” – employees or partners of the stockholder that designated them – meaning that these designees will owe duties both to their employer and to the company’s stockholders generally. As discussed in this article, these duties are unlikely to be reliably compatible.
