USA Law and Practice Contributed by: Matt Hurd, Melissa Sawyer and Scott Crofton, Sullivan & Cromwell LLP
4. Directors and Officers 4.1 Board Structure
At the meeting, the secretary of the corporation will typically keep board minutes as the official record of board deliberation and action. Recent Delaware cases have emphasised the importance of boards adhering to corporate formalities (such as documenting board actions through minutes, resolutions and official letters). For example, stockholders are increasingly mak - ing demands in reliance on Section 220 of the DGCL, which gives stockholders the right to inspect a corporation’s books and records for certain purposes, in order to gather informa - tion to criticise a corporation’s decisions and decision-making processes in advance of fil - ing lawsuits or launching activist campaigns. Under these cases, corporations that observe formalities can generally satisfy a Section 220 demand by producing those formal records only. However, corporations that instead correspond through informal channels (such as emails and text messages) may need to produce those elec - tronic communications. Corporations in the USA are required to hold an annual stockholders’ meeting for purposes of electing directors and taking other actions, and may also call special meetings to allow stockholders to take action in between annual meetings. If permitted by applicable state law and the corporation’s organisational documents, stockholders may take action by written consent in lieu of a meeting. See 5.3 Shareholder Meet- ings for more information about stockholders’ rights to call special meetings or act by written consent. In an LLC or a partnership, action may be taken at meetings or by written consent, as may be set forth in the LLC operating agreement or the partnership agreement. There is generally no requirement to hold meetings.
A typical board structure for a US corporation includes a single class of directors elected annu - ally with standing committees that are delegated authority by the board to be responsible for cer - tain matters such as audit, compensation and corporate governance matters. The board’s authority to delegate matters to committees is typically broad, and committees will generally have the full authority to exercise the power of the board, subject to limited exceptions. Most directors in the USA are elected annu - ally. However, many states, including Delaware, permit boards to stagger their directors into separate classes that are up for election less frequently than annually. In such cases, each director class is generally limited to a term of no longer than three years. As a result, stockhold - ers of corporations with staggered boards only elect a portion of the board each year (eg, a third of the board). Staggered boards have become less common among US public corporations, largely due to opposition from proxy advisory firms and institutional investors who argue that such structures diminish director accountabil - ity to stockholders and promote entrenchment. See 4.4 Appointment and Removal of Direc- tors/Officers for more information regarding the election of directors. 4.2 Roles of Board Members A board of directors of a public corporation is typically comprised of management directors (ie, directors who also serve as employees or offic - ers of the corporation) and independent direc - tors. However, there may be other directors who are not independent but also not management directors (eg, directors who are employed by a controlling stockholder of the corporation). See
873 CHAMBERS.COM
Powered by FlippingBook