Posted by Brian V. Breheny, Allison L. Land, and Ryan J. Adams, Skadden, Arps, Slate, Meagher & Flom LLP, on
Thursday, June 1, 2023
Effective August 1, 2022, Section 102(b)(7) of the Delaware General Corporation Law (the “DGCL”) was amended to permit Delaware corporations to exculpate certain senior officers, to provide them with protection from liability for monetary damages that is similar to the protection that has been available for directors under the DGCL for nearly 40 years. To provide for officer exculpation, however, a Delaware corporation must amend its certificate of incorporation, which requires stockholder approval. Heading into the 2023 proxy season, it was unclear how many Delaware corporations would seek to take advantage of this new officer exculpation provision and, if so, whether their stockholders and the proxy advisory firms would support proposed amendments to certificates of incorporation to effect this change. With many annual meetings completed, initial results have been very encouraging. To date, over 260 publicly traded Delaware corporations have proposed amendments to their certificates of incorporation to provide for officer exculpation, and have submitted such proposed amendments to their stockholders for approval at their 2023 annual meeting. With nearly half of those annual meetings completed, the vast majority of such proposals have received stockholder approval, often by an overwhelming majority of the votes cast.
Background
Section 102(b)(7) of the DGCL was amended less than a year ago to authorize exculpation of certain senior officers of Delaware corporations from personal liability for monetary damages in connection with breaches of their fiduciary duty of care (the “Officer Exculpation Amendment”). This was viewed by many as a welcome and necessary change, putting such senior corporate officers on similar footing with directors, who have long been afforded protection from personal liability, although the officer exculpation provisions are more limited than the protection available to directors. In recent years, the frequency with which officers of public corporations have been targets of stockholder lawsuits has increased significantly, emphasizing the need to provide them with protection from personal liability.
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