December 14, 2022

Advance Notice Bylaws: Handle Them With Care. . .

I recently blogged about the dust-up in Chancery Court between Masimo Corporation & Politan Capital Management over some aggressive amendments to Masimo’s advance notice bylaw adopted in response to Politan’s activist campaign. This Sidley memo takes a deep dive into the issues associated with the amendments adopted by Masimo, and offers the following guidance:

– Companies should not lose sight of the desirability of adopting or amending advance notice bylaws on a “clear day.” Adopting on a “rainy day” invites the specter of enhanced scrutiny review. Defensive bylaws adopted in the context of an activist campaign are more susceptible to review under a heightened degree of scrutiny.

– Adopting bylaw amendments that frustrate or preclude altogether shareholders’ ability to run a proxy contest increases the likelihood of this more onerous standard of review. The Delaware courts have stated that the clearest set of cases providing support for enjoining an advance notice bylaw involves a scenario in which a board, aware of an imminent proxy contest, adopts an advance notice bylaw so as to make compliance impossible or extremely difficult.

– When adopting advance notice bylaws, engage counsel with experience amending corporate bylaws for advance notice provisions. The considerations for the adoption of various bylaw provisions are rapidly evolving and will continue to do so for the foreseeable future.

Masimo’s bylaw amendments were adopted in response to the exigencies of a specific activist campaign, and at this point, there doesn’t appear to be much interest among S&P 500 companies in adopting similar changes to their own bylaws. Companies considering amendments to advance notice bylaws should be aware of the potential legal and investor relations downsides associated with an approach that might be deemed too aggressive by courts and investors.

John Jenkins