USA Law and Practice Contributed by: Matt Hurd, Melissa Sawyer and Scott Crofton, Sullivan & Cromwell LLP
tion or death or an increase in the board’s size), the stockholders or a majority of the directors still in office can generally appoint a new direc - tor to fill that vacancy unless the corporation’s organisational documents provide otherwise. Officers are appointed by the board of the cor - poration, and the offices of a corporation are typically set forth in the corporation’s by-laws or in board resolutions. An officer may be removed by the board with or without cause, subject to contractual protections in that officer’s employ - ment agreement. 4.5 Rules/Requirements Concerning Independence of Directors See 1.3 Corporate Governance Requirements for Companies with Publicly Traded Shares and 4.3 Board Composition Requirements/ Recommendations for a discussion of rules and requirements relating to director independence. The federal securities laws and state law pro - vide rules relating to director conflicts of inter - est. Under the federal securities laws, public companies are required to disclose any trans - action over USD120,000 that has occurred since the last fiscal year or is currently proposed, in which the company is a participant and any “related person” (defined to include the com - pany’s directors, among others) has or will have a direct or indirect material interest. Whether a director’s interest in a transaction is “material” is a fact-specific determination; however, the federal securities laws do provide a number of “per se immateriality standards” , including if the director’s interest in the transaction arises solely because he or she also serves as a director at the other company involved in transaction and/ or owns less than 10% of the other company’s stock. The federal securities laws also require public companies to disclose their internal poli - cies for reviewing transactions with related per -
sons and the persons responsible for applying such policies. Under state law, transactions in which a director has a conflict of interest may be voidable and/ or subject to a duty of loyalty breach claim by a stockholder. However, most states have adopt - ed safe harbour statutes for conflicted transac - tions, which provide that such transactions are not per se voidable if any of the following condi - tions are met: • the material facts relating to the conflict are disclosed to the board and the transaction is approved by non-conflicted directors; • the material facts relating to the conflict are disclosed to stockholders and the transaction is approved by non-conflicted stockholders; and/or • the transaction is fair to the corporation. In Delaware, the DGCL was also recently amend - ed to provide that transactions involving conflict - ed directors or officers or involving controlling stockholders (other than going-private trans - actions) can also now be protected from both equitable relief and damages liability (including in connection with duty of loyalty claims) if they are either (i) approved by an independent board committee consisting of at least two non-con - flicted directors, or (ii) approved or ratified by a majority of the votes cast by the corporation’s non-conflicted stockholders. 4.6 Legal Duties of Directors/Officers See 2.1 Hot Topics in Corporate Governance . 4.7 Responsibility/Accountability of Directors In Delaware and many other states, directors and officers of a corporation owe fiduciary duties to the corporation as an entity and to its stock -
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