Proposed Amendments to Delaware Code to Facilitate Majority Voting for the Election of Directors

Bill Sjostrom —  28 April 2006

From the ISS Corporate Governance Blog:

In another development in the debate over board elections, the executive council of the Corporate Law Section of the Delaware State Bar Association has issued a recommendation on the issue. On April 20, the lawyers’ group endorsed draft legislation to amend the Delaware General Corporation Law to enable shareholders to introduce an irrevocable change of bylaws on director elections, as well as provide for an irrevocable resignation of directors who fail to get a requisite number of votes.

The proposal, which must be endorsed by the full bar association and then passed by state lawmakers, is noteworthy because a majority of U.S. public companies are incorporated in Delaware. The proposal would amend paragraph 216 of Section 5 of the law to provide that a company bylaw adopted by a vote of stockholders that prescribes a required vote for director elections cannot be altered by the board without shareholder consent.

Another proposed revision seeks to get around the restrictions of Delaware’s “holdover” rule by adding a new provision that a director resignation may be made effective upon the occurrence of a future event or events, coupled with authority granted in the same section to make certain resignations irrevocable.

I haven’t been able to track down a copy of the draft legislation, but it sounds similar to the proposed amendments to the Model Business Corporation Act (see here).

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