17 Law Professors File Amicus Brief Attacking Corporate Democracy – Corporate Law/Commercial Law

United States: 17 law professors file amicus brief attacking corporate democracy

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Earlier this year, the trial of one of the challenges to SB 826, California’s female director quota law, ended, but Los Angeles Superior Court Judge Maureen Duffy-Lewis did not has not yet rendered its decision. Crest v. Weber, Cal. Great. CT. Case No. 19STCV27561. Meanwhile, another challenge to SB 826 is pending in federal court. In December, the U.S. District Court Judge refuse Plaintiff’s motion for a preliminary injunction and Plaintiff has appealed to the Ninth Circuit Court of Appeals, Meland c. Weber, Ninth Cir. Case No. 22-15149.

Last week, 17 law professors submitted a amicus brief in support of SB 826 in which they make the remarkable, though incorrect, assertion that “Ultimately, the type of board members to be appointed remains a decision of the board”. While it is true that boards of directors or board committees typically present a slate of nominees, Delaware law recognizes that a shareholder’s right to vote includes the right to nominate. Thus, while a Delaware corporation may pass articles requiring shareholders to provide notice of nominees, the articles must “shall, the [their] face and in the particular circumstances, give shareholders a fair opportunity to nominate nominees.” Hubbard v. Hollywood Park Realty Enterprises, Inc., 1991 Del. Ch. LEXIS 9, *35. , it shall suffer separate and distinct direct prejudice of the society.

The law professor’s brief undermines his own argument that the plaintiff’s claim is derivative rather than direct, by emphasizing the board’s power to make appointments. This means that it is the board, not the company, that is harmed by the quota constraints imposed by SB 826.

Boards of directors or board committees regularly make appointments. But does this mean that boards of directors have the inherent right to make appointments or could the articles of association reserve this right for shareholders exclusively? The Delaware Supreme Court has suggested that the council has such a right in Stroud versus Grace, 606 A. 2d 75 (Del. 1992). However, he did not cite the source of this right.

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