A corporate law list serv to which I subscribe recently raised an interesting but very technical question of Delaware corporate law.
Here's the question:
Delaware General Corporation Law sections 141( c )(1) and (2) state:
“The board of directors may . . . designate 1 or more committees, each committee to consist of 1 or more directors of the corporation. The board may designate 1 or more directors as alternate members of any committee . . . Any such committee, to the extent provided . . . shall have and may exercise all the powers and authority of the board . . . . [with some specific exceptions]”
Presumably, the board “ may designate 1 or more committees” means both “create” and “appoint.” (The code says that the board may “designate” alternate committee members.)
Suppose the board formally creates a “Board Committee Members Appointment Committee” with only one member, who happens to be the Chair of the Board. Furthermore, the board formally delegates to the “Board Committee Members Appointment Committee” the following authority: the power to appoint the members of other board committees.
The Delaware General Corporation Law would apparently permit this means of allowing the board chair to appoint the members of board committees.
Is that right?
Here's my answer:
Interesting question, although Delaware law may not be determinative at least insofar as listed companies are concerned. The commentary to NYSE Listed Company manual section 303A.04 Nominating/Corporate Governance Committee states that "New director and board committee nominations are among a board's most important functions. Placing this responsibility in the hands of an independent nominating/corporate governance committee can enhance the independence and quality of nominees." The Committee must be comprised solely of independent directors. Hence, a one person committee comprised of the chairman of the board would be proper only if the chair was an independent director.
Section 303A.04 requires that listed companies (excepting controlled companies) must have a nominating committee and that the committee have a charter meeting specified requirements. I recently had occasion to look at several nominating committee charters and all had a provision pursuant to which the nominating committee makes recommendations to the board as to staffing of board committees. I didn't see any in which the nominating committee actually selects committee members.
As for whether 141(c) allows the nominating committee to actually appoint committee members, I would assume that the list of exceptions to the powers that may be delegated to the board is exclusive, but I admit I know of no case so holding (or even discussing the point). But cf. Washington v. Christiana Service Co., 1990 WL 177645 (Del. Super. 1990), in which the court stated that: “'Expressio unius et exclusio alterius,' stands for exactly the opposite proposition [to that urged by a party]; thus, when the General Assembly specifically lists a series of items, the logical inference is that all unlisted items are excluded."
Interestingly, MBCA sec. 8.25(e)(3) expressly prohibits committees from filling either board or committee vacancies. Not sure why the drafters phrased the statute to refer to filling vacancies without speaking to the issue of initial appointment, and the comments don't speak to it.
Any corporate lawyers out there think I'm wrong? (Or right, for that matter?)
