Milbank LLP partners Iliana Ongun, Neil Whoriskey and Dean Sattler co-authored an article titled “Chancery Rejects Validity of ‘New Wave’ Stockholder Agreement Terms” for the Harvard Law School Forum on Corporate Governance.
The article reviews West Palm Beach Firefighters’ Pension Fund v. Moelis & Company, in which the Delaware Court of Chancery held that a “new wave” stockholder agreement between Moelis & Company and its founder, CEO and board chairman Ken Moelis was invalid under the Delaware General Corporation Law because it contained “pre-approval rights” over a number of corporate actions, required the board to recommend individuals designated by Moelis for a majority of directorships and fill committee positions and board vacancies with Moelis designees, impermissibly constraining the board’s ability to manage the business and affairs of the company – powers the statute does not allow the board to delegate via contract.
Moelis, the authors explain, “is a strong reminder that the foundation of the corporate form in Delaware is the independent authority of a board of directors, elected by stockholders and entrusted to manage the business and affairs of the corporation as fiduciaries. Delaware will not permit this foundation to be eroded through contractual arrangements with stockholders.”
Read “Chancery Rejects Validity of ‘New Wave’ Stockholder Agreement Terms.”
