The Council of Institutional Investors (CII) is urging the Delaware State Bar Association to hit pause on recommending that the state legislature overturn a judicial decision. CII said the decision earlier this year reflected a reasoned analysis whereby the Court of Chancery struck down parts of a stockholder agreement that constrained the board’s authority to act, but left in place other restrictions that were consistent with state law. But the industry group’s main issue with the proposed legislation is that there is no need to rush a law through without full analysis and debate.
The basis for the holding in West Palm Beach Firefighters’ Pension Fund v. Moelis & Company, No. 2023-0309-JTL (Del. Ch. Feb. 23, 2024), is that as a matter of Delaware corporate law, a corporation is managed by the board. The court accordingly struck down provisions of a stockholder agreement that compelled the board to recommend the stockholder’s designees for election; compelled filling a vacancy created by a departing designee with another designee; and enabled the stockholder to prevent the board from increasing the number of director seats.
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