DE Supreme Court Rejects Stockholder-Proposed Bylaw Amendment

A board of directors of a Delaware corporation seeking to combat manipulative takeover tactics or to deter unwanted acquirers has a variety of legal tools at its disposal. For instance, the Delaware General Corporation Law (“DGCL”) permits a corporation to implement a classified, or “staggered,” board of directors. A classified board is divided into three classes, with each serving three-year terms, but only one of which stands for election in any given year. Unless the corporation's charter provides otherwise, members of a classified board may be removed from office only “for cause” by vote of the stockholders (often, by a supermajority vote). By forcing insurgent stockholders to wait two annual meeting cycles before gaining majority representation on a board of directors, a classified structure aids a corporate board's use of a stockholder rights plan (“poison pill”) to pursue a “just-say-no” defense against an unwanted takeover attempt. Hostile bidders, the theory goes, do not have the patience to wait 12 or more months to gain majority control of a board of directors in order to complete a takeover. Clever lawyers, of course, are constantly seeking ways around classified boards and other takeover defenses.