Delaware courts have held that officer exculpation amendments do not require a separate class vote. For corporations with multiple classes of stock, this provides certainty to those that have already adopted such amendments and a clear path for corporations that plan to propose them. The vast majority of public company proposals to adopt officer exculpation amendments have been successful; however, only a minority of Delaware S&P 500 companies have made such proposals.
Proxy advisor guidance on officer exculpation amendments remains unchanged for 2024, with both ISS and Glass Lewis voting on a case-by-case basis. So far, negative recommendations do not seem to have had a noticeable impact on the passage of proposals.
As noted in our previous Legal Update, the August 2022 amendments to Section 102(b)(7) of the Delaware General Corporation Law (DGCL) permits a Delaware corporation to include an officer exculpation provision in its certificate of incorporation, providing officers protection similar to that previously only afforded to directors. Specifically, the provision allows corporations to eliminate or limit personal liability for monetary damages for breaches of the duty of care by certain senior officers of the corporation. Exculpation of officers is not permitted for breaches of the duty of loyalty, acts or omissions not in good faith or that involve intentional misconduct, knowing violations of law, or transactions where the officer receives an improper personal benefit, or claims brought by or in the right of the corporation (derivative claims).
In order to provide for officer exculpation, a corporation must include an officer exculpation provision in its certificate of incorporation. For existing corporations, amending the certificate of incorporation to provide for officer exculpation requires board and stockholder approval. Below we discuss recent developments affecting corporations that are seeking to adopt these amendments.
Read our Legal Update.