Fee Shifting Bylaws and the Reaction of Institutional Investors (Part 4)

We are discussing letters written by a number of institutional investors to proxy advisory firms and policymakers in Delaware. Copies of the letters can be found here.

Will these letters have any influence?

They certainly provide evidence that shareholders do not favor fee shifting bylaws. They make more difficult (although not impossible) the argument that fee shifting bylaws are really intended to benefit shareholders rather than management. They also raise the profile of fee shifting bylaws, indicating that the matter goes well beyond the interests of the plaintiffs' bar.  

The issue will likely return to the state legislature sometime in 2015. In 2014, the legislature had before it an effort to resolve the issue. A Senate Bill would have provided that "neither the certificate of incorporation nor the bylaws of any corporation may impose monetary liability, or responsibility for any debts of the corporation, on any stockholder of the corporation, except to the extent permitted by Sections 102(b)(6) and 202 of this title."  

Justice Ridgely, in his recent article on bylaws, had this to say: 

• A majority of the Delaware State Bar Association’s Council of the Corporation Law Section had a similar concern and earlier this year proposed an amendment to the DGCL through Senate Bill 236, which would prohibit fee-shifting bylaws from a stock corporation’s governing documents. The proposed legislation garnered substantial attention and prompted a significant amount of lobbying efforts for and against the bill. In June 2014, the Senate Bill was tabled in favor of a resolution giving representatives of the Delaware bar more time to study the use and effect of fee-shifting bylaws. Although tabled for now, the proposed legislation has put entities and investors alike on notice that an amendment to the DGCL will likely be considered again when the legislative session resumes in 2015.

The views of institutional investors provide a counterweight to those earlier "lobbying efforts" and presumably provide additional incentive for the Delaware legislature to act.