How Advance Notice Bylaws Are Faring In Del. Courts

Olshan Chair of Litigation Lori Marks-Esterman, partner Adrienne Ward and counsel Jacqueline Ma authored an article in Law360 (subscription required) entitled “How Advance Notice Bylaws Are Faring In Del. Courts.” In the article, the authors explain how, after the SEC adopted a rule requiring the use of universal proxy cards in contested annual director elections, hundreds of public companies have amended their advance-notice bylaws governing shareholder nomination procedures. The rule requires that both companies and dissident shareholders issue proxy cards that include all nominees as opposed to single-slate ballots—though there have been unintended consequences. “While several reasons may underlie this trend,” Lori, Adrienne and Jacqueline write, “one factor is clear: When corporate boards amended their ANBs to address changes related to the universal proxy card rule, many went further, modernizing by adopting provisions specifically aimed at increasing the barriers to a successful dissident nomination. The most concerning trend, from an activist perspective, is the adoption of ANBs that require disclosure of wide-ranging information about the nominating shareholder’s and nominees’ relationships, which extend far beyond federal requirements.” They outline that recent court decisions demonstrate that the courts are engaging in extra reviews of bylaws to balance the competing interests of shareholders and boards: “The Supreme Court may further clarify the standard of scrutiny that applies to bylaw challenges. We expect that the Delaware courts will continue to carefully balance these interests, and that draconian ANBs that improperly interfere with the stockholder franchise will be struck down.”