TheCorporateCounsel.net

Here is another pearl of wisdom from Kris Veaco:

I learned something the other day during a conversation about majority voting with John Johnston of Morris Nichols that I think is worth raising since the majority vote movement is in full swing. Morris Nichols has just written a memo entitled “The Nuts and Bolts of Majority Voting” that raises some significant concerns about the effectiveness – under Delaware law – of certain by-law amendments being adopted to implement majority voting.

As we know, a number of companies have adopted some form of a majority vote standard – and of those, some have elected to amend their by-laws to accomplish that, instead of amending their governance guidelines. For those Delaware corporations that have used by-law amendments like the one below, or are contemplating doing so, it sounds like a conversation with Delaware counsel may be in order. I just looked through Broc’s spreadsheet on those companies with majority voting standards and picked out this representative by-law provision:

“Except as provided in Section 3 of this Article II, each director shall be elected by the vote of the majority of the shares cast with respect to the director at any meeting of stockholders for the election of directors at which a quorum is present, provided that if at the close of the notice periods set forth in Section 13 of Article III, the Presiding Stockholder Meeting Chair (as described in Section 14 of Article III) determines that the number of persons properly nominated to serve as directors of the Corporation exceeds the number of directors to be elected (a “Contested Election”), the directors shall be elected by a plurality of the votes of the shares represented at the meeting and entitled to vote on the election of directors. For purposes of this Section, a vote of the majority of the shares cast means that the number of shares voted “for” a director must exceed the number of votes cast “against” that director. If a director is not elected in a non-Contested Election, the director shall offer to tender his or her resignation to the Board of Directors. The Governance and Nominating Committee of the Board of Directors, or such other committee designated by the Board pursuant to Section 5 of this Article II for the purpose of recommending director nominees to the Board of Directors, will make a recommendation to the Board of Directors as to whether to accept or reject the resignation, or whether other action should be taken. The Board of Directors will act on the committee’s recommendation and publicly disclose its decision and rationale within 90 days following the date of the certification of the election results. The director who tenders his or her resignation will not participate in the Board’s decision with respect to that resignation.”

The Morris Nichols memo points to those features of the current by-law provisions that are troublesome – and offers some alternatives. For example, they note that by-laws requiring a director to resign appear to be contrary to Section 141 of the DGCL, and that the new provision of Section 141(b) allows a director to tender an irrevocable resignation conditioned on the failure to receive a specified vote.

In other words, there is a way to accomplish the goal, but it requires the director to have made an election to resign in advance. For example, the annual D&O Questionnaire could include an advance irrevocable election to resign made by each director that the Board would then use if the director failed to gain the required vote. In addition, they raise concerns about the recusal provision and the language about contested elections.

Nasdaq Proposes Consistency Change for Related-Party Transactions

Last week, Nasdaq filed a proposed change to the threshold in its director independence rule from $60,000 to $120,000 to be consistent with the SEC’s new related-person rules.

Transcript Available: John Olson on “The Board Presentation”

Due to popular demand, we have posted a transcript of John Olson’s keynote presentation from our September executive compensation disclosure conference. The video archive of John’s remarks is still available at no charge – and continues to get rave reviews!