Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance, and Director of the Program on Corporate Governance at Harvard Law School. This post is part of the Delaware law series; links to other posts in the series are available here.
The Delaware State Bar Association (“DSBA”) and the Council of the DSBA’s Corporation Law Section recently approved a proposal (“the proposal”) to make an amendment (“the proposed amendment” or “the proposed legislation”) to Section 122 of the Delaware General Corporation Law (“DGCL”). The proposed amendment would permit expansive use of stockholder agreements—agreements between a board and a stockholder (or group of stockholders)—to opt out of the governance arrangements set by the company’s charter.
The proposal was sent to the Delaware legislature, and it is contemplated that the legislature would adopt it in the current session of the legislature, which ends in several weeks. As explained below, however, the proposal raises serious concerns. Adopting it would have a wide range of detrimental consequences for institutional investors, and other public investors, as well as for the quality of governance in Delaware companies.