Professor Bainbridge...on law, politics, religion, culture & food

Counsel for CA Comments on CA v AFSCME

Robert Giuffra of Sullivan and Cromwell represented CA in the recent proceeding before the Delaware supreme court. He comments on the court’s opinion:

It reaffirms the bedrock principle of Delaware corporate law that the directors of a corporation, not the shareholders, manage the business and affairs of the corporation. The decision confirms that shareholder bylaws may not prevent the directors from fulfilling their fiduciary duties. To attempt to address the concerns articulated by the Court with the proposed bylaw, stockholders may attempt to modify their proposed bylaws in ways that leave boards with discretion to discharge their fiduciary duties. In addition, the decision makes clear that bylaws may not “mandate how the board should decide specific substantive business decisions,” but may “define the process and procedures by which those decisions are made.” Where the line will be drawn between those bylaws that mandate substantive decisions and bylaws that are procedural likely will be decided by the Delaware courts on a case-by-case basis in the future. Finally, under the Court’s reasoning, a binding shareholder bylaw proposal to prohibit a board of directors from adopting or implementing a “poison pill” likely would be deemed improper under Delaware law.

I think that’s right, although I plan to post separately on the latter point.

Sullivan and Cromwell has put out a clients and friends memo on the case.