Along with dozens of other top corporate law faculty, I signed a letter sent to the Delaware legislature opposing the proposed amendment to DGCL section 122(18). The amendment is designed to overturn VC Laster's recent decision in West Palm Beach Firefighters’ Pension Fund v. Moelis & Company.
I should stress that not everyone who signed the letter did so because they agree with Moelis. I would support a more carefully drafted legislative fix. But this proposal was drafted in a hurry and not very well. As the letter states:
The Proposal would do more than simply overturn Moelis. It would allow corporate boards to unilaterally contract away their powers without any shareholder input. It would also exempt such contracts from Section 115, thereby creating a separate class of internal corporate claims—including claims of breach of fiduciary duty—that could be arbitrated and decided under non-Delaware law. These would be the most consequential changes to Delaware corporate law of the 21st century, and they should not be made hastily—if at all.
Proponents of the Proposal argue that the Moelis decision struck down a common practice of Delaware corporations and that the Proposal merely restores the status quo ante. Not so. The contract in Moelis was far from typical, especially for public corporations, and the Moelis decision only held that certain of its provisions contravened the board-centric model of governance codified in Section 141(a). Those provisions could only be adopted in the corporate charter, and thus only after a majority of shareholders—who invested in reliance on Section 141(a)—gave their approval.
