Issue link: https://digital.shearman.com/i/1512772
Shearman & Sterling LLP Extension of Oversight Fiduciary Duties to Officers | 28 • Books and Records Demands and Document Management. Delaware stockholders increasingly invoke their rights under Section 220 of the Delaware General Corporation Law (DGCL) to inspect corporate books and records prior to initiating litigation. To the extent that board materials, such as minutes, resolutions and, in some instances, materials circulated to the board in advance of meetings, reflect updates provided to the board by corporate officers on subject matter within purview, those records can discourage would- be litigants from filing suit against officers. Corporations will be well served by ensuring that information provided to the board is conveyed in accordance with corporate best practices (e.g., in a report circulated to the board in connection with a meeting); informal correspondence can expose companies to books-and-records demands that seek email and other electronic communications beyond traditional corporate records. • Exculpation of Officers. In August 2022, Section 102(b)(7) of the DGCL was amended to allow a Delaware corporation to amend its certificate of incorporation to eliminate or limit the personal liability of certain officers of the corporation for monetary damages to the corporation or its stockholders for breaches of the fiduciary duty of care. While a board may find it necessary to amend the corporation's certificate of incorporation to afford its officers this additional protection, it is important to note that amended Section 102(b)(7) does not permit officers to be exculpated for breaches of the duty of loyalty, from which oversight claims derive, or from derivative claims. In addition, the leading proxy firms, Glass Lewis and ISS, have provided guidance on a public corporation's proposal to amend its certificate of incorporation to eliminate or limit the personal liability of certain officers. 6 Despite these policies, a number of companies have received shareholder support to amend their certificate of incorporation to eliminate or limit the personal liability of certain officers. • Glass Lewis. Glass Lewis stated that it will generally vote against proposals eliminating personal monetary liability for breaches of the duties of care for corporate officers, unless a compelling rationale is provided by the board and the provisions are reasonable. As such, any corporation looking to implement such an amendment will need to carefully consider what the rationale is behind the decision and provide explanatory support for this proposal. • ISS. ISS indicated that it will vote on a case-by-case basis on proposals relating to exculpation of officers. In evaluating each case, ISS will consider the stated rationale for the proposed change and consider the extent to which each proposal would eliminate an officers' liability for monetary damages for violating the duty of care or the duty of loyalty, expand coverage beyond just legal expenses to liability for acts that are more serious violations of fiduciary obligations than mere carelessness, or expand the scope of indemnification to provide for mandatory indemnification, at the discretion of the corporation's board, that previously the company was not required to indemnify. 6 See Glass Lewis, "2023 Policy Guidelines," https://www. glasslewis.com/wp-content/uploads/2022/11/US-Voting- Guidelines-2023-GL.pdf (2023); see also ISS, "Americas Proxy Voting Guidelines," https://www.issgovernance.com/ file/policy/active/updates/Americas-Policy-Updates.pdf?v=1 (November 30, 2023).