On March 22, 2024, Law360 quoted Mike Schiffer and Carmen Fonda on the Delaware courts’ recent decisions regarding the use of advance-notice bylaws during shareholder board nominations.
According to Law360, boards are using invasive advance-bylaws to protect themselves against shareholder activism. The story cites one recent Court of Chancery decision, which struck down several advance-notice bylaws as "murky" and "off the rails," is creating uncertainty about how much information companies can legally demand from activist shareholders, with many awaiting guidance from Delaware courts on how to proceed.
Corporate attorneys around the country are closely watching the new cases to see how much scrutiny the Chancery Court applies, Schiffer and Fonda told Law360.
According to the article, Vice Chancellor Lori W. Will's Dec. 28 ruling in Kellner v. AIM Immunotech Inc. is among the first in Delaware to grapple with a wave of stringent and sometimes confusing new director nomination rules that companies have added to their bylaws since the U.S. Securities and Exchange Commission put new universal proxy card rules for director elections into place.
In the Kellner case, the court applied a rigorous level of scrutiny because the AIM board adopted the bylaws in response to an ongoing proxy contest. But the newest suits challenge bylaws that were adopted on a "clear day," with no immediate threat of a proxy contest, Schiffer and Fonda explained.
Companies updating their bylaws are waiting to see how the Chancery Court responds to the new cases and what level of scrutiny will be applied, Fonda said. "Boards are making decisions every day, and they look at that uncertainty."
If the Chancery Court strikes down bylaw provisions that were adopted on a "clear day," it could trigger a "proliferation" of litigation or "a huge number" of companies filing 8-Ks to amend their bylaws very quickly, Schiffer said.
Schiffer explained further that "practitioners across the country are paying attention to this because of the impact it could have even in other states.”
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