Category: Corporate law
Delaware bill to update emergency powers, revise PBC provisions and amend indemnification provisions signed into law
Delaware Assembly Bill 341 has finally been signed into law. Among other things, the bill confirms the availability of specific powers relating to stockholders’ meetings that may be exercised by the board during an emergency condition, such as the current pandemic. These powers include changing the date, time and place of meetings (including to virtual formats) and, for public companies, providing notice of these changes through an SEC filing. These provisions are effective retroactively as of January 1, 2020. (See this PubCo post.) The bill also makes it easier to convert a traditional corporation to a public benefit corporation or a PBC to a traditional corporation and amps up the protections for directors of a PBC. (See this PubCo post.) Another provision of the bill, less widely discussed, relates to indemnification, discussed below.
Will the California courts enforce a Delaware exclusive federal forum provision?
In Salzberg v. Sciabacucchi (pronounced Shabacookie), the Delaware Supreme Court unanimously held that charter provisions designating the federal courts as the exclusive forum for ’33 Act claims are “facially valid.” (See this PubCo post.) Given that Sciabacucchi involved a facial challenge, the Court had viewed the question of enforceability as a “separate, subsequent analysis” that depended “on the manner in which it was adopted and the circumstances under which it [is] invoked.” With regard to the question of enforceability of exclusive federal forum provisions if challenged in the courts of other states, the Court said that there were “persuasive arguments,” such as due process and the need for uniformity and predictability, that “could be made to our sister states that a provision in a Delaware corporation’s certificate of incorporation requiring Section 11 claims to be brought in a federal court does not offend principles of horizontal sovereignty,” and should be enforced. But would they be? Following Sciabacucchi, many Delaware companies that did not have FFPs adopted them, and companies with FFPs involved in current ’33 Act litigation tried to enforce them by moving to dismiss state court actions. One such case is currently being fought in California state court involving ’33 Act claims against Dropbox, and, as noted in this column in Reuters, a group of former Delaware jurists and a former SEC Commissioner have filed an amicus brief in support of the company’s effort to enforce the FFP in that case.
A couple of quick updates
Just a couple of quick updates regarding proposed Delaware legislation and previous SEC relief:
Proposal to amend the DGCL to provide relief regarding stockholders’ meetings
On April 6, the Governor of Delaware signed an emergency order applicable to public reporting companies addressing the urgent need of many companies, in light of COVID-19, to change their annual meetings from physical locations to virtual-only formats, including at different dates. The order allowed companies to provide notice of the change by issuing and filing with the SEC a press release instead of complying with the Delaware requirement to send a formal written notice to stockholders or convening the meeting to adjourn, which could be extremely difficult under the current circumstances. (See this PubCo post.) However, the order provided relief only to companies that had already sent out, as of the date of the order, notice of a meeting of stockholders that indicated a physical location. What about companies that sent out their notices after April 6, but still needed to make a change? The relief under the Delaware order was apparently not available to them. Now, the Corporate Law Section of the Delaware State Bar has approved a proposal to amend the DGCL to address this issue. Will the Delaware legislature provide the necessary relief? And if so, when? [Update: this bill was signed into law on July 16.]
Delaware emergency order provides relief regarding changes to annual meetings
As you may know, even though Corp Fin staff had provided relief allowing public companies a relatively simple way to advise their shareholders of a change in the date or location of their annual meetings (including a change to a virtual-only format), companies incorporated in Delaware that needed to make those same changes still had to address the complications associated with compliance with Delaware law. Fortunately, tonight, the Governor of Delaware appears to have come to the rescue with an emergency order that may ease many of those complications.
Cooley Alert: President Signs CARES Act
On Friday, the President signed into law the ‘‘Coronavirus Aid, Relief, and Economic Security Act” (CARES Act), a $2 trillion relief package intended to provide “emergency assistance and health care response for individuals, families and businesses affected by the 2020 coronavirus pandemic.” Here is a link to our Cooley Alert, which summarizes key portions of the CARES Act: https://www.cooley.com/news/insight/2020/2020-03-29-president-signs-cares-act
Will the Delaware Supreme Court revive exclusive federal forum provisions for ’33 Act claims?
Yesterday, the Delaware Supreme Court heard the appeal in Sciabacucchi v. Salzberg (pronounced Shabacookie!) in which the Chancery Court held invalid exclusive federal forum provisions for ’33 Act litigation in the charters of three Delaware companies. Few of the justices revealed their inclinations, so it’s difficult to predict the outcome. We’ll have to wait for the Court’s final decision.
Another challenge to California’s board gender diversity law
There’s now another legal challenge to SB 826, California’s board gender diversity statute, filed today in the federal district court in the Eastern District of California. In Creighton Meland v. Alex Padilla, Secretary of State of California, a shareholder of a publicly traded company that is incorporated in Delaware and headquartered in California filed a complaint seeking a declaratory judgment that the statute is unconstitutional under the equal protection provisions of the 14th Amendment and a permanent injunction preventing implementation and enforcement of the statute. A representative of a legal organization contended that the statute “puts equal numbers above equal treatment….This law is built on the condescending belief that women aren’t capable of getting into the boardroom unless the government opens the door for them. Women are capable of earning a spot on corporate boards without the government coercing businesses to hire them.” This case appears to be the second complaint filed to challenge the new law, the first being, Crest v. Alex Padilla. (And here is the amended complaint.) As you may recall, Crest, filed in California State Court, was framed as a “taxpayer suit” that sought to enjoin Padilla from expending taxpayer funds and taxpayer-financed resources to enforce or implement the statute, claiming violations of the equal protection provisions of the California constitution. (See this PubCo post.)
Are we misunderstanding the elements that lead to good governance?
What does good governance really mean? What does it mean to follow best practices? Are there really best practices that make sense for all companies? Do we tend to latch onto easily identified and measured structural features that may not really be effective for good governance and ignore qualities that may be more effective but are not as easily identified or measured? Do we even have a common understanding of the meaning of concepts central to governance? These are some of the questions addressed in an interesting paper, “Loosey-Goosey Governance Four Misunderstood Terms in Corporate Governance,” from the Rock Center for Corporate Governance at Stanford.
Business Roundtable says so long to shareholder primacy—commits to deliver value to all stakeholders
In a press release issued today, the Business Roundtable announced the adoption of a new Statement on the Purpose of a Corporation, signed by 181 well-known, high-powered CEOs. What’s newsworthy here is that the Statement “moves away from shareholder primacy” as a guiding principle and outlines in its place a “modern standard for corporate responsibility” that makes a commitment to all stakeholders. Yup, that Business Roundtable. According to the press release, the Business Roundtable has had a long-standing practice of issuing Principles of Corporate Governance. Since 1997, those Principles have advocated the theory of “shareholder primacy—that corporations exist principally to serve shareholders” — and relegated the interests of any other stakeholders to positions that were strictly “derivative of the duty to stockholders.” The new Statement supersedes previous statements and “more accurately reflects [the Business Roundtable’s] commitment to a free market economy that serves all Americans. This statement represents only one element of Business Roundtable’s work to ensure more inclusive prosperity, and we are continuing to challenge ourselves to do more.” Fasten your seatbelts, disciples of Milton Friedman; it’s going to be a bumpy night.
You must be logged in to post a comment.