One item your board might consider for year end 2015 and early 2016 is amending the company’s charter to add the exculpating protection of DGCL Section 102(b)(7).
I know it is early, but one item your board might consider for year end 2015 and early 2016 is amending the company’s charter to add the exculpating protection of DGCL Section 102(b)(7). I have previously blogged on Friedman v. Dolan (Cablevision), but the case also highlights another (slightly) hidden issue. Look at this one sentence from the opinion:
Furthermore, Cablevision’s charter contains a Section 102(b)(7) provision. “[P]laintiffs must plead a non-exculpated claim for breach of fiduciary duty against an independent director protected by an exculpatory charter provision, or that director will be entitled to be dismissed from the suit.” In re Cornerstone Therapeutics Inc., S'holder Litig., ___ A.3d ___, 2015 WL 2394045, at *5 (Del. May 14, 2015). (Emphasis added)
In the Cornerstone case earlier this year, the Delaware Supreme Court held that Section 102(b)(7) can be invoked at the motion to dismiss stage in almost all circumstances, regardless of standard of review and whether or not an interested transaction is challenged. Importantly, Section 102(b)(7) exculpation is different from indemnification. Virtually all companies provide indemnification “to the fullest extent of the applicable law” in their charter, but not all companies incorporate Section 102(b)(7) exculpation.
The bad news is that companies very rarely amend charters. One reason for this is that amending your charter gives ISS the opportunity to weigh in on whatever you are trying to do. However, I suggest you bring this to the board’s attention, and if the company is amending its charter for any others reason, it seems like a no-brainer to add this.