October 2, 2017
Activism: “Intent-to-Serve” Bylaws Tackle “Placeholder” Nominees
About this time last year, I blogged about activists’ use of “placeholder” nominees as an end-run around nomination deadlines in advance notice bylaws. The tactic gained notoriety in 2016, when activist hedge fund Corvex Management used it in a proxy contest involving The Williams Companies.
This Skadden memo says that since that time, more than 50 public companies – including 19 in the S&P 500 – have amended their bylaws to address the potential for a “placeholder slate” of directors. Here’s an excerpt that addresses the features of those bylaws:
By our count, in the past year, 54 companies have amended their bylaws in the wake of the threatened Corvex-Williams proxy fight, including Williams itself. Our survey of the market shows:
– With minor variations, the language used in the amended bylaws is mostly standard: A director nominee must provide a written representation that he or she “intends to serve” as a director.
– The majority of the amendments (45) specify that the individual must intend to remain a director for the “full” or “entire” term, and two companies add that the director must intend to serve until a successor is elected and/or deemed qualified.
– 17 companies explicitly state that the nominee must “currently” intend to serve a full term (i.e., at the time of nomination); the remaining bylaws do not specify a particular time frame during which the intention must exist.
– One company’s bylaws take the intent-to-serve requirement a step further by requiring that it be “genuine.”
– Only a minority of companies make clear that the qualification applies to all directors and not just stockholder nominees.
The memo points out that neither the use of placeholder nominees nor these “intent-to-serve” bylaws has yet been tested in court. It reviews applicable provisions of Delaware law relating to director qualifications & says that case law would suggest that director qualifications that apply equally to all director nominees are more defensible than those aimed solely at shareholder nominees.
ISS policies generally frown on the board’s unilateral adoption of restrictive director qualification bylaws – but the memo says that ISS has not yet adjusted its corporate scorecard for these “intent-to-serve” bylaws or even addressed them publicly.
– John Jenkins