In recent years, several hundred Delaware-incorporate companies have adopted exclusive forum bylaws requiring that certain lawsuits brought by shareholders against the companies be filed in Delaware court. Companies feel that such provisions would eliminate having to defend similar cases brought in multiple jurisdictions, reducing overall costs, expediting resolution and ensuring the cases will be decided by judges familiar with Delaware law, specifically in Delaware’s business-focused Court of Chancery.
Some shareholders, concerned about shareholders only being able to sue those companies in Delaware, challenged the validity of such bylaw provisions by suing some of those companies. In late June, the Delaware Court of Chancery ruled that company boards can adopt bylaws requiring that most shareholder lawsuits against companies with such bylaws be brought in that state. Since that ruling, roughly 70 companies—including 21st Century Fox, DuPont, JCPenney, Electronic Arts and Air Product & Chemicals—have adopted an exclusive forum provision.
Glass Lewis believes that such exclusive forum bylaws are generally not in shareholders’ interests since they unnecessarily limit full legal recourse by preventing shareholders from bringing suit in a forum of their choosing. Like for other bylaw provisions that affect shareholder rights, Glass Lewis believes shareholders should have the opportunity to vote on the adoption of such bylaws.
Despite the ruling, Glass Lewis’ general approach to exclusive forum provisions remains unchanged. While Glass Lewis reviews each situation on case by case basis, Glass Lewis will generally recommend that shareholders vote against any bylaw or charter amendment seeking to adopt such a provision. However, Glass Lewis may consider supporting the adoption of such a provision in consideration of whether the company provides a compelling argument on why the provision is necessary, how the provision would directly benefit shareholders and where the company otherwise has a record of good corporate governance practices. Further, Glass Lewis will generally recommend voting against the chair of the governance committee chair when a board adopts such a forum selection clause without shareholder approval, again in consideration of the aforementioned factors.