Activist investors targeting board positions are encountering increased obstacles as several influential U.S. business courts continue to uphold a lenient stance on restrictive board nomination bylaws. The most prominent of these courts, Delaware’s judiciary, which significantly influences corporate law across the country, has adopted a case-by-case approach to evaluating advance-notice requirements. These bylaws are frequently employed by directors at numerous companies, including Albertsons Cos. and Zuora Inc., to deter potential challengers.
These measures form part of a broader trend of defensive strategies at the board level, often demanding intricate disclosures regarding the financial holdings, intentions, and affiliations of shareholders aspiring to join the board. Such stipulations make it notably more difficult for activist investors to navigate the nomination process, solidifying the incumbents’ advantage.
The recent rulings by Delaware courts demonstrate a preference for limited judicial interference regarding these advance-notice bylaws, consequently narrowing activist investors’ pathways to challenge the existing board makeup effectively. As a result, expect further fortification of these defensive tactics, entrenching sitting directors’ positions while raising the barriers for external nominees.
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