I'm, about to teach a unit on the powers and fiduciary duties of controlling shareholders in my Business Associations class, which makes it an opportune moment to answer a question from a reader; namely, "How could Cablevision Chairman Charles Dolan 'fire' four directors?"
If you haven't been following the Cablevision saga, here's a quick synopsis: Charles Dolan is the Chairman of the Board and, by virtue of holding shares of a special class of stock with super voting rights, holds a majority of the voting power of Cablevision's stock. (For a discussion of how dual class super-voting rights stock works and its legality, see my article The Short Life and Resurrection of SEC Rule 19c-4.) Dolan and his son James have had a falling out over, inter alia, Cablevision's struggling Voom satellite TV service.
Dolan recently removed three directors and appointed replacements. My reader wanted to know Dolan could do so, since ordinarily directors serve until their replacements are elected at the next annual meeting of the shareholders. here's how:
Cablevision is incorporated in Delaware. Delaware General Corporation Law section 141(k) provides:
Any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors ...
Hence, under Delaware law, shareholders may vote to remove directors at any time without cause (in the absence of contrary provisions in the bylaws or articles of incorporation.
But don't they need a stockholders' meeting you ask? Probably not. DGCL section 228(a) provides:
Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.
Because Dolan by himself controls shares "having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting," he could effect the removal of directors by written consent without any action by fellow shareholders.
Removing the directors resulted in a total of four vacancies. My guess is that the board of directors (not Dolan acting qua shareholder) then filled those vacancies using its power under DGCL section 223(a)(1), which provides:
Vacancies [in the board of directors] ... may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director ....
I don't know for sure that this multi-step procedure was the precise one used by Dolan. News accounts have been way too sketchy on these sort of technical details. But my guess is that it went something like the way described above. certainly, it could easily work that way.
Update: A couple of alert readers sent me Cablevision's latest 8-K (I had forgotten that a change in board composition now requires filing of a 8-K), pursuant to which we learn that Dolan used written consents both to remove and to replace the board:
On March 2, 2005, Cablevision Systems Corporation (the "Company") received a letter from Charles F. Dolan, the Chairman of the Company, stating that he was acting on behalf of holders of the Company's Class B Common Stock ("Class B holders") owning a majority of the Class B Common Stock, informing the Company that the Class B holders have removed each of William J. Bell, Sheila A. Mahony and Steven Rattner as directors of the Company. The letter did not specify any reason for the removals. The letter also stated that such holders have elected Rand Araskog, Frank Biondi, John Malone and Leonard Tow as directors to fill the vacancies created by the removals and the vacancy recently created by the death of the Company's co-founder, John Tatta. ...
