Some significant changes will be on the table when Delaware’s General Assembly considers the 2022 proposed amendments to the DGCL. Among other things, the proposed amendments would permit exculpation for corporate officers, broaden the board’s authority to delegate the issuance of stock and options, and expand appraisal rights. Here’s an excerpt from this Troutman Pepper memo that discusses the proposal to permit officer exculpation:
Perhaps the most impactful change under consideration is an amendment to Section 102(b)(7) of the DGCL, which currently allows corporations to eliminate or limit directors’ personal liability for monetary damages for breach of the fiduciary duty of care. As proposed, the amendment to Section 102(b)(7) would allow corporations to extend similar protections to their officers as well.
An important exception, however, is that officers may not receive exculpation resulting from derivative claims (i.e., those brought by or on behalf of the corporation). Instead, under the proposed amendments, officers can only be exculpated for direct claims (i.e., those brought against them by stockholders alleging direct harm to the stockholders). Additionally, such protection will extend only to certain senior officers: the president, chief executive officer, chief operating officer, chief financial officer, chief legal officer, controller, treasurer, chief accounting officer, or any other person who has, by written agreement with the corporation, consented to be identified as an officer.
Stockholder plaintiffs in corporate litigation often cast a wide net when asserting claims against defendants. It has become increasingly common for senior-level officers to be accused of corporate wrongdoing alongside the board of directors. Often, directors and officers can serve in both capacities. Corporations will now have the option to protect certain officers from stockholder suits largely to the same extent that they can protect their directors.
If enacted, the proposed changes to Section 102(b)(7) are expected to become effective on August 1, 2022. Certain other changes would be effective for transactions entered into on or after that date.
– John Jenkins