Abstract

The shareholder's role in corporate management is evolving. In CA, Inc. v. AFSCME, the Delaware Supreme Court likely expanded that role in a ruling that signals the potential for greater shareholder access to the corporate boardroom and enhanced director accountability. The court determined that a shareholder proposal to mandate reimbursement of certain board of director candidates was a proper subject for shareholder bylaws. But the court also held that the particular bylaw in question did not preserve the board's ability to exercise its fiduciary duties and, therefore, violated Delaware law. Future bylaws governing director nominations and elections are likely to include fiduciary-out clauses to preserve directors' fiduciary duties. Boards of directors can use those fiduciary outs to refuse reimbursement to successful candidates, discouraging future shareholder nominees. This Note urges Delaware courts to review the exercise of such fiduciary-out clauses under the strict standard of scrutiny articulated in Blasius Industries, Inc. v. Atlas Corp. The Blasius standard requires a compelling justification for a board's decision to interfere in shareholders' election of directors. A board's decision to invoke a fiduciary-out clause to prevent the reimbursement of a successful candidate would signal to all future candidates that the substantial costs of the election process still must be borne by the nominating party. The Delaware Supreme Court reiterated in CA, Inc. the importance of shareholder participation in the nomination and election of directors. To protect shareholders' fundamental role, the Blasius standard should be implemented to ensure shareholders' attempts to nominate candidates are not thwarted by entrenched boards of directors.

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