2009 Updates To Delaware General Corporation Law - Part 3: Improved Shareholder Access To Proxy Materials - Now, What Will The SEC Do?

Delaware has added two new sections to the General Corporation

Law, effective August 1, 2009. While the legislature appears to be

concerned about improving shareholder access to proxy materials,

the effect of these changes may not be clear for a while.

Some Background

The issue of shareholder nomination of directors of a public

company is complex. In general, shareholders do not have the

ability to nominate a person whose candidacy and biography will be

included in the company's proxy materials. To achieve access to

the shareholder constituency equal to that accorded to the

company's candidates, a shareholder must wage an expensive

proxy fight using the shareholder's own proxy materials. SEC

Rule 14a-8 reinforces this dilemma, by authorizing public companies

to exclude contested elections (i.e., shareholder nominations and

the establishment of procedures for making such nominations) from

the company's proxy statement.

The by-laws of most public companies typically contain advance

notice provisions that require shareholders wishing to make

nominations, or to bring up business, at a shareholder meeting to

provide a considerable amount of information about their

intentions, as well as information about nominees that is

comparable to that required by SEC rules applicable to proxy

statements.

The Delaware legislature has now offered a new framework for

providing access to company proxy materials, by enacting sections

112 and 113 to the General Corporation Law. While these sections

are new, it is by no means clear that prior to this amendment a

Delaware corporation could not adopt by-laws such as those now

explicitly authorized. This suggests that the change is partly one

of emphasis, a step toward enhanced shareholder access to the

election process.

Section 112 – Access to Proxy Solicitation

Materials

Section 112 permits (but does not require) a Delaware

corporation to adopt a by-law that specifies the circumstances

under which shareholders would have access to the corporation's

proxy materials. Although section 112 does not set forth the

circumstances under which shareholder access must be granted,

section 112 potentially limits the board's discretion, because

the adopted by-laws may provide access if the particular conditions

and procedures specified are satisfied.

As for the provisions in a section 112 by-law, the statute

contains a non-exclusive list, including:

Requiring a minimum level of beneficial ownership (which may be

defined so as to...