Delaware corporate law is constantly evolving, and 2022 was no exception. As the year draws to a close and proxy season is approaching, it could impact plans for the 2023 Annual Meeting, among others, to be scrutinized by Glass Lewis and ISS under the recently announced 2023 Policy Guidelines. Here are some highlights of potentially significant changes: For the full text of the proposed amendments effective August 1, 2022, see Delaware Senate Bill No. 273.
Officer exemptions are now permitted (Delaware General Corporation Law (“DGCL”) Section 102(b)(7)) – Amended to allow Delaware corporations to adopt charter clauses to limit or exclude officers’ personal liability for monetary damages resulting from breach of fiduciary duty of care. Prior to such amendment, Section 102(b)(7) granted such an exemption to directors, but not to officers. Like the immunity of directors, this protection protects against breaches of loyalty, acts or omissions not based in good faith, or willful misconduct or violation of law, or acts committed by officers knowingly, or from receiving improper personal benefits. Not applicable to trading. However, unlike the directors’ immunity, the officer’s protection does not extend to liability for claims (ie, derivative actions) brought against officers by or in the company’s interests. If a company amends its articles of association to include an officer disclaimer, the protection applies only with respect to acts or omissions occurring after the date of amendment.
This amendment allows companies to provide exemptions for the following officers: (1) President, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Legal Officer, Controller, Treasurer or Chief Accounting Officer, (2) “Designated Executive Officer” (3) an individual who has agreed to be identified as an officer of the Company.
Amendments to the Articles of Incorporation that include officer exemptions must be approved by the board of directors and shareholders. Both Glass Lewis and ISS recently published their 2023 policy updates. Each proxy voting advisor has indicated that it considers such proposals on a case-by-case basis, and ISS has provided more detail than Glass Lewis regarding the factors it considers in its consideration. Depending on the composition of a company’s shareholder base, it may be important to consider whether Glass Lewis and ISS may support a proposal to amend the company’s articles of association to include an officer immunity provision. . This was a first impression case as our proxy voting advisors considered a small number of proposals presented since the amendments entered into force in August 2022. Their historical position regarding the expulsion of directors.
Glass Lewis. Glass Lewis recently published its 2023 Policy Guidelines, which apply to shareholder meetings held on or after January 1, 2023. Glass Lewis has set a new policy as follows:
“We will closely evaluate proposals to adopt officer exemptions on a case-by-case basis. We generally recommend voting against proposals that eliminate financial liability for violations.”
ISS. ISS also recently announced the publication of its 2023 Policy Guidelines. This generally applies to meetings held on or after February 1, 2023, with certain transition period exceptions and off-cycle company exceptions. ISS has combined its policy regarding director waiver proposals with its existing policy regarding director waiver proposals. ISS will evaluate these proposals on a case-by-case basis and generally recommend voting on such proposals. In evaluating a proposal, ISS will consider, among other factors, the rationale for the proposal and the extent to which the proposal:
- Exclude officers liability for pecuniary damages for breach of duty of care and/or loyalty.
- Extend coverage beyond legal costs to include liability for acts of fiduciary breach that are more serious than mere negligence.When
- To provide mandatory indemnification of Company Officers in connection with conduct for which, at the discretion of the Company’s Board of Directors, the Company was previously authorized, but not required, to provide indemnification. Increase range.
ISS will only cover the individual’s legal costs if (1) the individual was found to have acted in good faith and in a manner reasonably believed to be in the company’s best interests;
Glass Lewis policy generally states that it recommends voting against these proposals, and ISS policy states that it generally recommends voting yes on such proposals. However, it is not yet clear how the respective case-by-case analysis of proxy voting advisors will be carried out. Over the course of the upcoming Proxy season.
Shareholder List (DGCL Section 219) – Amended to remove the requirement that a company publish its shareholder register to shareholders during shareholder meetings. Section 219 requires the company to make the shareholder register available for inspection by the shareholder 10 days before the shareholder meeting.
Postpone a virtual meeting (DGCL Section 222) – Unless otherwise stipulated in the company’s Articles of Incorporation, if a virtual meeting of shareholders is postponed, including due to technical failure, the company must notify the meeting again of the date and place of the postponement if it is postponed. was amended to specify that there is no (1) announced at the meeting; (2) displayed during the scheduled time of the meeting on the virtual platform used for the meeting; or (3) included in the original meeting notice.
Right of Appraisal (DGCL Section 262) – Modified so that stock beneficiaries can directly request appraisal rights. In other words, they no longer need record holders (such as Cede & Co.) to claim such rights on behalf of their beneficiaries. and, subject to certain exceptions, make certain other changes, including changes to valuation rights notices and valuation procedures, and the establishment of shareholder valuation rights in connection with the conversion of a Delaware corporation into another entity. has been fixed.
Converting Delaware Corporations (DGCL Section 266) – Modified to reduce shareholder approval required to convert a Delaware corporation to a foreign corporation (or other entity) from unanimous approval to majority approval. It also eliminated the requirement for non-voting shares to approve conversions.
Nationalization of Non-U.S. Corporations to Delaware (DGCL Section 388) – For non-U.S. entities wishing to domesticate as Delaware corporations, amended to provide, among other things, that the foreign entity prepare a domestication plan. The law states that the plan may authorize corporate action by a Delaware company following domestication and does not require separate approval for such action from the Delaware company’s shareholders and/or board of directors. I stipulate.
Delegation of Authority in Equity Grants (DGCL Sections 152 and 157) – Amended to provide the Board and its committees with more flexibility when they choose to delegate the power to grant stock options or other stock acquisition rights to others. I was. DGCL previously provided limited powers for the board and its committees to grant officers stock options or other rights to acquire shares within certain strict parameters established by the board or its committees. Allowed to delegate. For example, the board or its committee had to approve the terms of the award (other than the winner and size).
The amended DGCL allows the Board or its committees to delegate powers. Any Allow any such person or entity to amend the terms of the award, as opposed to the board of directors or its committees. Any such mandate shall include (1) the maximum number of shares, rights or options that may be granted, (2) the period for which the shares, rights or options may be granted or issued, and (3) a minimum amount. Consideration required to be received for shares, rights or options in